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Looking for the best return? Buy old
Data show the best increases in condo valuation since 2012 were all for complexes built before 1994

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Friday, February 9, 2018 – Page H6

What's the best Torontoarea condominium investment you could have made in the past five years? Maybe a sweet deal on a presale that could be worth a lot more when it's finally finished or perhaps you're betting a brand new penthouse on King West is going to go up and up in value.

Nope, according to data compiled by Urbanation Inc., the best increases in valuation across condo land since 2012 were all in complexes built before 1994, and three of the top five earners were finished in the 1980s. Shaun Hildebrand, senior vice-president at Urbanation, found 23 buildings where, according to Toronto Real Estate Board sales data, units more than doubled in price as the condo boom gained speed.

"From a statistical point, it makes perfect sense: a low base in a market growing quickly. The starting point is something so low they get to enjoy highest per-cent gains as units appreciate and turn over," Mr. Hildebrand says. "You can see that most buildings are located in mainly in Etobicoke and Scarborough, with unit sizes averaging over 1,000 square feet."

How good were the deals?

Let's say you bought an 1,856square-foot condo in the Atrium 1 at 33 Elmhurst Ave. in North York in 2012 (that's the average size of units sold that year, a small sample because only eight of the building's 223 suites changed hands). At that time, the average price per square foot was $256, so it might have cost about $475,000. In 2017, only 13 units sold, but the average selling price was $586 a square foot (and the average size was smaller, at 1,550 square feet) so that same unit would be worth at least $1.08-million. The increase in price per square foot was 129 per cent, the highest rate of return in the city.

The oldest building on the list was Millgate Manor, at 812 Burnhamthorpe Rd. in Etobicoke, registered in 1974. It has seen its per-square foot selling price jump 101 per cent in the five-year period, meaning an average selling price for a 1,321square-foot unit went from $276,000 in 2012 to $554,800 in 2017.

When there's so much new supply coming into the market, what's driving the interest in these dated condos?

"Older buildings tend to have a higher share of two-bedroom units than newer buildings, which to some extent have become a substitute product for low-rise homes that have appreciated out of reach for many," Mr. Hildebrand says.

A Ryerson University City Building Institute report, one Urbanation contributed to, also pointed to a demographic collision that could continue the competition and price growth for those units. "Between 2016 and 2026, the 35-to-44-age bracket is expected to grow by 207,000 residents, driving increased demand for larger, more family-friendly housing."

The report says those aging millennials will run smack into "downsizers," the cohort of more than 484,000 seniors of ages 65 and up that will be looking for similar-sized units.

And even though not many of those old-timey units come to market (our list contains only 315 units sold in 2017, up very slightly from 298 in 2012), they remain more affordable than brand new apartments downtown, which are selling at close to $1,000 a square foot.


With unrelenting demand and the deep pockets that come with it, condo builders are consistently winning the contest for scarce building land in Toronto.

According to Altus Group Ltd., a real estate consulting firm, the price per square foot that a residential use can support is rising far faster than that for commercial uses.

"The price that residential developers can afford to pay for land has been rising very rapidly," says Matthew Boukall, a senior director in the Altus Data Solutions team, because the price per square foot Toronto buyers are paying for finished condos is also rising rapidly: from an average of $600 a square at the end of 2016 to $800 a square foot at the end of 2017. "Residential demand was through the roof last year, and developers were chasing every available parcel to bring residential to market," Mr. Boukall says.

"It's not really a fair fight," says Daniel Holmes, a senior managing director in commercial realtor Colliers International Canada's office practice group. "We're seeing everyone trying to bid on all kinds of different projects, you can project the winners - if it's going to be a development site for condo or office - long before bid date.

"It's just the math," Mr. Holmes says. "You can sell condos units for more than the return on investment in an office building over an extended period of time."

The Toronto office market has gotten incredibly tight in recent years. According to Altus Group's 2018 State of the Market report, Toronto's overall office-vacancy rate fell in 2017 for the first time in six years, at the same time that two million more square feet of space was completed and added to the market.

"There's a shortage of office space, the market's very tight, it's the strongest we've seen in a long time. But is it stronger than the desire for residential in Toronto?" asks Jeff Thomas, executive vice-president with Cushman & Wakefield Inc. To explain the difference, he poses a thought experiment: If you had land and $400-million to spend and you were building on spec (with no tenant prebooked) would you be more comfortable assuming you could fill it with office tenants or with homeowners?

"If it was an apartment of condo building, you'd say it would be occupied in a month," Mr. Thomas says. "The office, these are big complex sophisticated tenants heavily driven by the economy, so you don't exactly know when that building is done if you're going to have a market or not."

And that dynamic is only getting worse for office developers: Tucked away in the Altus presentation was a slide noting a recent $87-million deal to buy a lot at 1323 Bay St., in Yorkville, which worked out to $380 a square foot. Not that Yorkville is exactly a destination for office development, but that's almost twice as high as any commercial developer could afford to pay for land, according to Mr. Thomas.

Many times an office developer won't even bid on a parcel if it has any residential possibilities, that includes major mixed-use projects, such as the Well at Front and Spadina, that are becoming more common in the city. That means commercial developers are having to get very crafty to find new land.

"There are no more easy sites left, every site that we'd look at has complications and challenges," says Derek Goring, vice-president of development at office developer First Gulf Corp. "We have a project at 25 Ontario St. and its essentially too big for a one-tower and not big enough for a two-tower residential site. It's big enough to fit an office building - which requires more land than a residential building - and it's in this sweet spot that created an opportunity for us to buy the site competitively with how a residential developer would price it.

"But there's very few sites like that; it just doesn't happen very often anymore - developers are getting more and more creative to how they can fit buildings onto a small site."

Associated Graphic

Altus Group's 2018 State of the Market report says Toronto's overall office-vacancy rate fell in 2017 for the first time in six years, at the same time that two million more square feet of space was completed and added to the market.


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