How Do You Experience a Majestic Indo-Canadian Temple, a Major Asian Retail Centre, two Suburban City Centres and a World Famous Museum in One Day?

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Itinerary

 

Mississauga City Hall

A simple answer – come to the LAI Toronto Land Economics Weekend - Oct. 23-25, 2008.

Last month’s KeyNotes article reviewed the events for the Friday of the Toronto weekend – now on to Saturday:

The day starts with a trip up the Don Valley/ Highway 404 Corridor – Toronto’s ‘Silicon Valley’ – you will see the business park development of the 1950’s and 1960’s in Don Mills – the first master planned community in Canada, and then north into Markham where prestige business park development continued in the 1980’s and beyond.

Plan of Downtown Markham

We then stop at the recently planned and just developing Downtown Markham, a transit friendly, intense development in a suburban setting – John Livey, Markham’s Chief Administrative Office, and a senior representative of the master developer, the Remington Group, will give us the full inside story at the Presentation Centre.

From there we will see Pacific Mall, a large scale indoor retail condomimium shopping mecca catering to Toronto’s Asian community – you will need to remember your Beijing Olympic Chinese to read the signs!

Our next stop is the BAPS Shri Swaminarayan Mandir – a magnificent Indo-Canadian complex. Built in 2005 this complex is made up of 95,000 cubic feet of stone carved in India and shipped to Toronto including 340 pillars and 84 decorative ceilings. The buildings were built to last 1000 years.

Indo-Canadian Mandir

We then travel west across the city to Mississauga – the major suburban community in Toronto that is now fully developed and undergoing intensification. We will stop for lunch in the Living Arts Centre located in Mississauga’s City Centre – in case you are wondering the Mississauga’s were the original native Canadian population in this area.

Edward Sajecki, Mississsauga’s Commissioner of Planning and Building will be giving the lunch presentation. We will learn how this community has evolved from a collection of townships to its form today and what is being planned including major transit initiatives.

We then head back to Toronto along the waterfront where a condominium specialist, Barry Lyon, will describe the array of major condominium projects – their history, the various market cycles they have addressed and the current market for high density condos in the city.

Michael Lee-Chin’s napkin design sketch of the ROM Crystal 

We will end the day with dinner at the Gardiner Museum of ceramics across the street from the Royal Ontario Museum (ROM). ROM has recently completed one of the world’s largest museum restoration and expansion projects including the showpiece Michael Lee-Chin Crystal. William Thorsell, the Director and CEO of ROM, will be our dinner speaker. He will review how the ROM restoration and expansion was seen as one of the key Toronto cultural projects spearheading economic development in the city.

Please visit our web site- www.lai-simcoe.org – for a detailed itinery and links to the places we will visit.

A registration form will be on the LAI web site shortly – in the meantime please email our event chairman, Jim Ayres, at jayres@casselsbrock.com, to request a form to be emailed to you directly.

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Toronto Itinerary

Kevin Harper,  Simcoe Chapter Administrator
kevin.harper@sympatico.ca

Letter from the President

Helen Sause

Dear Colleagues,

I am really looking forward to seeing you and Toronto soon!  It has been at least 15 years since I last visited Toronto and it will be a pleasure to see the many changes that I know must have taken place.  My eagerness has also been whetted by the recent study visit made by our local community advocacy group, San Francisco Planning and Urban Research Association (SPUR) to see what they learned in Toronto. This trip of SPUR, is part of their ongoing research of various world cities of great/good ideas that is used to develop guidance for SPUR’s advocacy for the betterment of San Francisco.

The following are extractions of some of their impressions from this study tour.  Since SPUR and LAI’s interests are so aligned, I believe that the report has relevancy for our upcoming LAI Toronto Land Economics Weekend on October 23 -25, 2008.  The report from the SPUR policy director starts a series of impressions that I encourage you to access by visiting info@spur.org or www.spur.org.

Toronto’s “Good Bones. Letter from the Policy Director” who reports “that Toronto is not a beautiful city.”  Toronto’s former chief planner and current “urban mentor” Paul Bedford explains that the city is about business first, not about beauty first” but went on to say it’s a city that has “good bones”. Jane Jacobs, we need to recall’ settled in Toronto in 1968 and often wrote about the city.  She noted that Toronto is first and foremost a city of neighborhoods, all with their own identity and character which now often reflects their ethnicity. She explained that “Toronto’s main streets are “the most basic self of the city” Why? Because they traverse its many neighborhoods, they are a live part of the city and form a strong sense of how they tie the many Toronto’s together from the downtown to the bustling Chinatown and beyond.  The good bones of Toronto also are reported to extend beyond its physical infrastructure to its “human infrastructure”... “there is a booming civic culture in Toronto defined by such efforts as Spacing Magazine, a quarterly publication devoted to understanding Toronto and prodding it toward a better, more sustainable future.”

“The Problem of Affordability” The affordability issue is much like San Francisco’s housing challenges.  However, Toronto is a city of 244 square miles with more than 2.5 million people and it is anticipated that within the next 10 years, more than 1 million people will migrate to Toronto.  They are also struggling to harness their resources to create funds for ending homelessness and create affordable housing.  Sounds achingly familiar!

“Toronto’s Orphan Spaces”. In 1998 Toronto began a decade to amalgamate seven municipalities addressing the necessary reconfiguration of political, financial and managerial structures. The amalgamation of these municipalities is a huge story in its own right. But it is interesting that Toronto took the time to address "orphan spaces" which are the "leftover" bits and pieces that every city has in abundance...recognizing that planting these spaces makes a big difference in a neighborhood and to encourage and support citizens' efforts to adopt and care for these "orphans"

“A lesson from Waterfront Toronto”.  As a result of Toronto’s location on the north shore of Lake Ontario, Toronto’s waterfront is going through a similar transition from historic maritime industries to a diverse mix of uses similar to the challenges with which San Francisco and so many other US cities fronting on a waterway are grappling. The waterfront metamorphosis was what brought me to Toronto in the 1980’s as our redevelopment agency was studying the transformation of Toronto’s waterfront by reusing warehouse buildings for the arts.  Since that beginning the City has initiated a city wide planning process, formulated strategies to connect the waterfront to the rest of the city and reuse the land for a mixture of uses.  They have engaged their federal government, Ontario provincial government and local resources to address the economic challenges of implementing the resultant 25 year plan economic stimulus plan.  These are only snippets from the excellent SPUR report.  It is intended to encourage you to think about LAI’s own study trip to this city as we prepare to see the many things that Toronto has accomplished, work underway and plans for the future.  I hope you will go on- line and read the SPUR report in full and visit Toronto this Fall.

Obviously looking forward to meeting up with you in Toronto!

‘Til next time.

Helen Sause
International LAI Editor
helensause@alamedanet.net

 

Commercial & Multifamily Property Lending Market Update
August 2008

By Cynthia A. Hammond, President / C.E.O., Churchill Commercial Capital, Inc.

One year ago the commercial property credit markets were hit with fallout from the residential subprime mortgage crisis.  Conduit lending came to a screeching halt.  Investors in CMBS bonds lost confidence in the risk level implied by the bond ratings, and simply stopped buying. 

Total lending funded by commercial mortgage backed securities dropped 93%  from $165.4 billion lent in the first half of 2007 to only $12.1 billion lent in the first half of 2008.  This cessation of conduit lending is material, in that CMBS loans account for 22.9% of total commercial and multifamily mortgage debt outstanding.  One cannot remove from the market $200+ billion per year, over a fifth of the total supply of money for commercial and multifamily mortgage debt, without causing severe repercussions. 

Source:  Commercial Real Estate Direct and Commercial Mortgage Alert

So what lenders remain to replace the money previously lent by conduit lenders?  The chart below shows market share among commercial and multi-family lenders.   Life insurance companies, banks and the agencies (Fannie Mae and Freddie Mac) are all still actively lending.  Life insurance companies have increased their lending volumes by 6% during the last half of 2007 and first quarter of 2008.  But this increase only accounts for an additional $1.88 billion lent.  Banks and savings institutions have the largest market share, but this figure is skewed by approximately half of the outstanding loans consisting of owner occupied properties also secured by a business loan.  Banks have definitely increased their lending, but again, not enough to fill in the gap left by the cessation of conduit lending,   And these loans generally require personal guarantees, whereas the conduit loans were non-recourse (not personally guaranteed).

The commercial mortgage backed security market volatility has resulted in significantly higher rates of return being required by buyers of CMBS bonds.  Investors do not have confidence in the safety of the income stream that supports their bond payments, and, as a result, are not willing to pay as much for the bonds.  A lower price for a bond results in a higher interest rate being earned by the buyer of the bond.  CMBS bonds are held by a multitude of investors, ranging from banks, pension funds, life insurance companies, trusts, private individuals, with locations across the globe.   The value of CMBS bonds held by public and regulated institutions must be marked to market each quarter.  So, as investors bid down the value of these bonds, the holders of the bond lose value, and may need to increase their capital reserves to account for the loss of value.

Meanwhile, life insurance companies and banks look at alternative investments when deciding the appropriate interest rate for a mortgage loan.  Included in alternative investments are CMBS bonds and corporate bonds.  This current credit crunch is affecting more than just real estate. Companies are having difficulty finding financing, and, more recently, credit card companies are also having financing difficulties.  So interest rates for bonds of all types have risen.  As a result, the interest rate spread charged for a real estate loan has also risen.  The chart below shows the interest rate spread over a 10 year Treasury bond that has historically been charged by a mid sized life insurance company, for a non-recourse, fixed rate loan, at varying levels of leverage (loan to value ratio):

Tight credit is being exacerbated by a slowing economy.  Fear of recession is causing lenders to avoid leasing risk in properties they finance.  Projects that have excessive vacancy or pending potential vacancy due to leases expiring in the near term will generally need to be financed by banks with full recourse, or by private lenders. 

Bank regulators are scrutinizing the lending policies of banks, which is causing banks to become more conservative when quoting loans. Full recourse is generally required, origination fees have risen, and interest rate spreads have risen. 

Life insurance companies are generally lending no more than 65% - 70% of a property’s value, with many staying below 60% LTV.  Quality of the property and borrower are paramount to the life insurance lender.  Interest rates are running between 6.30% - 7% for ten year fixed rate financing.  Five year money is in shorter supply, with spreads around 3.25% over the Treasury yields, resulting in rate around 6.55%.

Fannie Mae and Freddie Mac have been saviors in the multi-family financing arena.  They continue to lend up to 80% loan to value, with spreads around 2.40% over the 10 year Treasury.  Private lenders have stepped up to meet demand, financing those projects that do not meet the quality cut of the life companies, agencies or banks.  These lenders, who used to make mezzanine loan up to 85-90% of a project’s value, are now making loans up to 75-80% of a project’s value, and generally will take leasing risk, with higher interest rates.

Industry players are predicting a return to more liquid and normal credit markets in mid 2009 or early 2010.  Until then, volatility is anticipated to continue.  We expect credit to tighten further through the balance of 2008 as life companies reach their annual allocations, and as banks continue to tighten underwriting standards.  We are advising clients who are in need of commercial mortgage debt to act quickly, rather than waiting, as money will be tighter, and rent rolls are tending to erode with time.

Cindy Hammond, CMB
President
Churchill Commercial Capital, Inc.
Phoenix Chapter Scribe
chammond@churchillcc.com