The Sugar Wharf mixed-use project is one of Menkes’ major developments in Toronto’s downtown east neighbourhood. (Courtesy Menkes)
Menkes was a pioneer in developing Toronto’s now-thriving south core area and is now making its mark in the city’s evolving downtown east node.
“The overall area has the best of both worlds,” Menkes vice-president of office and retail Sean Menkes told RENX. “You have close proximity to the downtown core and all of its benefits.
“You also have access to the eastern waterfront, which is undergoing the largest revitalization of its kind in North America. A lot of that has to do with Waterfront Toronto’s efforts over the last two decades or so on infrastructure improvements.”
He cited bicycle lanes and paths, parks, improved streetscapes and sidewalks, and the promise of improved public transit in the future as some of the reasons people are choosing to live and work in downtown east.
“The eastern waterfront, and downtown east in particular, is planned to be a full-life-cycle neighbourhood that will be able to appeal to office workers, residents, tourists and anyone in the city who wants to come and visit the amazing amenities.”
Office and residential density fuel retail
There are several large office buildings either already built or being developed in downtown east, and there’s a swath of residential development fuelling evening and weekend demand for area retailers. There are two major mixed-use projects from Menkes making substantial progress and another will launch condominium sales this fall.
“Office and residential density are fuelling retail, and the retail that’s planned to be delivered are part of the amenities that’s fuelling residential and office demand,” said Sean Menkes. “It’s a self-fulfilling prophecy.
“As companies begin to move, and as residents begin to buy units in new condo towers, they’re buying based on retail amenities. And retailers want to be in this neighbourhood because of all that office and residential demand that they see coming. It’s all working together at the same time and we have critical mass in each category.”
“If we pick an area where we want to work, we just keep looking for sites in that area because we’re going to continue to add value,” Menkes executive vice-president of high-rise residential Jared Menkes told RENX in a separate interview.
“Convenience is paramount and residents are looking for experiences, and we want to cater to that through finding unique retail offerings, adding office and residential. It creates a 24-7 neighbourhood.”
Downtown east office buildings offer advantages
Since the large office buildings in downtown east are all relatively new, or still under construction, Sean Menkes said they’re “better equipped to handle the needs of tenants today than older buildings in the core or on King West.
“There’s better air quality and natural light. You’re steps to the core but you’re also benefitting from having less congestion. Sustainability is intertwined with every facet of the building’s operations.
“As tenants contemplate their return to work … they’re choosing to lease space in these types of buildings that can accommodate their employees, improve their productivity and keep them safe. These are all trends that existed pre-pandemic and they’re amplified post-pandemic.”
Toronto-headquartered Menkes was founded in 1954 and is a fully integrated real estate company involved in the construction, ownership and management of office, industrial, retail and residential properties. It’s one of the largest private developers in Canada, with a primary focus in the Greater Toronto Area.
Jared Menkes told RENX last November his company will develop almost six million square feet of space on Toronto’s waterfront in the next eight years.
Much of Menkes’ downtown east office activity is located close to Lake Ontario, and Sean Menkes said most of the meaningful sites unlocking the waterfront are under development. There are other sites in downtown east, however, and the company plans to remain active in the area — though Sean Menkes said there’s nothing in the pipeline that he can speak about at this point.
“When we invest in a neighbourhood like the waterfront or the south core or downtown east, we like to do it at scale,” he added. “We believe in the area and have made a bet on its future.”
“Prices continue to rise as sites continue to become harder to find,” said Jared Menkes. “That low-hanging fruit, which was old parking lots, are all gone.”
Sugar Wharf’s first phase includes a building with 600,000 square feet of office space and 75,000 square feet of retail on the first and second floors. The primary office tenants will be the LCBO, Toronto Region Board of Trade and Richardson Wealth.
Sugar Wharf ‘s first phase will also include two condos with 1,600 units and another 65,000 square feet of retail.
The retail elements will include a new 25,000-square-foot flagship LCBO store, a 30,000-square-foot grocery store, a 40,000-square-foot fitness facility, plus food and beverage offerings.
The office building will be completed this summer and the multifamily component will be delivered next summer, with the retail coming on board over the next year.
Sugar Wharf’s second phase will start in 2022 and have an additional 3,000 multi-family units in three buildings, 90,000 square feet of retail, a 50,000-square-foot elementary school, and a 2.5-acre public park that will be turned over to the city to benefit the entire community.
Jared Menkes believes younger residents age out of west-side neighbourhoods such as Liberty Village, King Street West and Queen Street West, whereas the east side better accommodates all age groups and household types.
Menkes is developing The Whitfield at the corner of Front and Sherbourne streets. (Courtesy Menkes)
Menkes’ next mixed-use building in the area will be The Whitfield at the corner of Front and Sherbourne streets, within easy walking distance of St. Lawrence Market, the financial core and the waterfront. The 38-storey building will have 460 condo units and two floors of retail and office space.
Units will range from studios to three bedrooms to accommodate a range of tenants.
The Whitfield’s amenities will include a large outdoor terrace, programmed landscaping, a kids room, a party room, co-working space and a theatre.
Sales will launch early this fall. A January 2022 construction start is anticipated, with occupancy expected in mid-2025.
A gas station, a Tim Hortons and a music studio/rehearsal space are on the site now. A heritage component on the property will be maintained.
Waterfront Innovation Centre
The 475,000-square-foot Waterfront Innovation Centre is comprised of two buildings connected by a second-floor bridge that’s 15,000 square feet. It will include an amenity floor with three conference rooms and a variety of seating areas where tenants can work.
“This is something that a lot of tenants are looking for today as a way to engage their employees differently,” Sean Menkes said. “It provides different work environments for them to be in so they don’t need to be stuck at their work station or in their office all day.
“They can meet with their colleagues or do individual work in a new environment that faces Sugar Beach.”
Waterfront Innovation Centre, which will be completed this fall, is about two-thirds leased to advertising and marketing company WPP. MaRS Discovery District, in connection with the University of Toronto, has more than 50,000 square feet. There are also a few other smaller office tenants.
Waterfront Innovation Centre will also include about 20,000 square feet of retail, including a 7,500-square-foot restaurant at the entrance to Sugar Beach.
Retail struggles during office closures
Menkes’ 25 York office building helped kick off the south core boom when it was completed in 2009, and its One York mixed-use office building has 150,000 square feet of retail on its first two floors.
Sean Menkes said retail tenants in its downtown mixed-use office buildings have struggled during the pandemic because their main customers have been building tenants and visitors to local amenities, such as Scotiabank Arena, both of which have been largely absent. Retailers have been using government assistance programs and Menkes has been helping out, so few have closed for good.
“Our view is that retail is an amenity for a project and we want to make sure that these hand-picked retailers that we put into the buildings are there for the office occupants when they return to work,” said Sean Menkes. “We’ve had a very accommodating approach to work with our retailers to make sure we can support them as they work through this difficult time.”
In markets, being right early is the same as being wrong. Fortunately for FT Alphaville, the same rule doesn’t apply to journalism.
Back in 2018, FT Alphaville took a look at Evergrande — China’s largest property developer — and its ballooning balance sheet, which included 408,000 car parking spaces, a land bank the size of Malta, and a curiously low yield on its rental properties.
Three short years later, Evergrande is facing a liquidity crisis. In a normal economy, this wouldn’t be such a big deal. But in China, where real estate is estimated to account for up to a quarter of GDP, this is slightly more of a concern. It doesn’t help that the property developer also has some $300bn of outstanding obligations to pay. And it’s crunch time: two interest payments on its long-suffering bonds are due Thursday.
So the question now is: how contagious would an Evergrande default be for the global economy? Chinese property stocks have started the week by already taking a battering, with Hong Kong listing Sinic Holdings crashing 87 per cent during trading on Monday, and the bonds of other developers sinking to distressed levels. Via UBS:
European equities this morning are also showing signs of suddern concern, with the FTSE 100 falling 1.6 per cent, and the Stoxx 600 off 1.8 per cent in midday trading. The basic materials sector is leading the charge, with the sector in the UK off 4.5 per cent, led by Anglo American’s fall of 8.6 per cent. In Europe, it’s a similar story, with steel company ArcelorMittal, as one example, down 6 per cent. (European banks also seem to be taking a battering, we should add.)
But why commodities? Well, the obvious answer is that real estate tends to use a lot of them — whether it’s steel for the structure or copper for wiring.
With that in mind, you might be wondering about just what level of exposure to the business of digging stuff out of the ground we are talking about here. Well, not to worry, because Tom Price at Liberum did a quick back-of-the-napkin estimate on what a Chinese real estate crunch might mean for commodities, and . . . it’s not too pretty.
Here’s the key blurb from his note this Monday morning:
bearish commodities? yes.
looking narrowly at the direct/first-round impact on commodities, this event threatens a slowdown in China’s property sector – 1-of-2 very large, broad-based commodity-consuming sectors of this economy (i.e. the other = infra).
it’s generally well known (among resources sector investors, at least) that China’s share of global commodities consumption = 40-70%.
but what share of global consumption is China’s property sector? Of China’s total commodity supply, its property sector consumes:
40% of steel flow (380Mtpa = 20% of global total);
20% of copper (2.7Mtpa = 20% of global)
15% of aluminium (6Mtpa = 9% of global)
15% zinc (0.7Mtpa = 5% of global)
10% nickel (0.2Mtpa = 8% of global)
ANSWER: China property = 5-20% of global commodity supply. – so yes, Evergrande’s potentially a big deal to Commodity World.
Yep, Chinese real estate accounts for a fifth of all global and copper steel supply. Blimey.
We don’t have a whole lot to add on top of those eye-opening stats, bar a passing thought that if you were an economy which depended on commodity sales for a large chunk of your output — say, Australia — you might be concerned that the fourth quarter is going to be a touch more difficult than expected.
New arrivals may further stress Canada’s already tight housing markets
Author of the article:
Just when you thought you could catch a break from pandemic-fuelled housing madness, experts are predicting the reopening of the U.S.-Canada border, and Canada’s commitment to boost immigration, could fuel even higher levels of demand. All those new arrivals, students and family members rejoining loved ones will need places to live. And Canada’s housing supply is tight.
“If you think it’s expensive now, just wait,” says Tom Storey, a real estate agent with Royal LePage in Toronto. “The numbers tell us that prices should go up because there’s a lot of people coming here and we’re not building enough new properties.”
Canadian government raising immigration targets
Exactly when new arrivals will impact housing markets is vague. Border entry is limited to those who can show they’re fully vaccinated.
But, once the pandemic’s threat has largely passed, the U.S. and Canadian governments have both expressed hopes that border traffic will return to normal.
Likewise, while Canada’s immigration goals call for 401,000 new permanent residents this year (reaching 1.2 million by 2023), dates aren’t specific and COVID-19 will continue to delay things in the short term.
Canada’s borders have been closed to most immigrants for much of the pandemic. But as the country’s population ages, economic immigration from workers and employers who ultimately become permanent residents has become more important.
“The key to both short-term economic recovery and long-term prosperity is immigration,” Marco Mendicino, Canada’s Minister of Immigration, Refugees and Citizenship, said at a news conference where he revealed the country’s goals through 2023.
The newcomers will put pressure on housing — either as homebuyers or renters.
In addition to new permanent residents, the number of international students in Canada is also rebounding. Those numbers were rising sharply before the pandemic, growing to 402,500 in 2019 — a 15 per cent increase from 2018, according government data.
Those with temporary work permits will also grow the population. Almost 70,000 more people were issued work permits in 2019 (a total of 404,000) and 63,020 people with temporary work permits were granted permanent residency.
Newcomers will need housing
Home prices were rising pre-COVID-19, due to a lack of housing supply combined with low mortgage rates and strong consumer demand.
Amid the new immigration policies, a growing student population and a proposed childcare system that’s expected to give families room to save more of their income, demand for housing will only grow, according to a recent report from Scotiabank.
Yet, home construction hasn’t kept up with demand for several years.
This year, as fewer newcomers have entered the country, the ratio of home completions to population has improved slightly. That’s likely to worsen as the government meets its immigration targets, the report says.
To avoid a continued rapid acceleration in home prices, experts argue immigration targets should align with housing policies that help meet the demand.
“Our federal government’s decision to raise immigration targets today without making the corresponding supply-side housing policy changes needed to increase supply is a decision to inflate home prices out of reach of most Canadians tomorrow — including many of our newest fellow citizens,” John Pasalis, the president of Toronto-based Realosophy Realty, says in a recent market report.
Immigration to impact the resale and rental markets
While Canada’s major cities have seen double-digit home price growth in recent years, the market overall appears to be calming.
July sales slipped 3.5 per cent on a month-over-month basis, according to the Canadian Real Estate Association, and sales are down a cumulative 28 per cent from a March 2021 peak.
Home sales in Canada fell a significant 14 per cent year over year in August, the Canadian Real Estate Association (CREA) said Sept. 15. Still, the association says, home sales in this country remain historically strong. And a lack of supply of homes for sale is pushing prices to record levels in Canada’s most populous cities.
The rental market, too, has been down from its high — in part due to restrictions on Airbnb units, which released bundles of short-term rentals into the traditional leasing market.
“When the borders open and [people] go back to university, you’re going to see an increase in the rental market,” Storey says. “Then it will flood into the sale market.”
But analysts say the property market is facing headwinds — namely inflation and the specter of rising interest rates.
And many of the Canadians who wanted to buy a home in order to get more space amid the pandemic, or even downsize, have already done so, says Adil Dinani of the Dinani Group for Royal LePage West in Vancouver. That may help cool off prices in the months to come.
Building more housing also will help.
“Supply is the common denominator in most of these major markets,” Dinani says. “There’s a shortage of quality inventory.”
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
The Evergrande Group or Evergrande Real Estate Group logo of a Chinese real estate company is seen on a smartphone and a PC screen.
SOPA Images | LightRocket | Getty Images
China’s “highly distressed” real estate companies are at risk of collapse as the country’s highly indebted developer Evergrande is on the brink of default, warns AllianceBernstein’s Jenny Zeng.
Speaking with CNBC’s “Street Signs Asia” on Friday, the co-head of Asia fixed income at AllianceBernstein warned of a “domino effect” from a potential Evergrande collapse.
“In the offshore dollar market, there is a considerable large portion of developers (who) are implied to be highly distressed,” Zeng said. These developers “can’t survive much longer” if the refinancing channel remains shut for a prolonged period, she added.
The financial position of the other Chinese property developers also took a hit following rules outlined by the Chinese government to rein in borrowing costs of the real estate firms. The measures included placing a cap on debt in relation to a company’s cash flows, assets and capital levels.
While the struggling developers are tiny individually, compared to Evergrande, they make up about 10%-15% of the total market on aggregate, Zeng said. She warned that a collapse could result in a “systemic” spillover to other parts of the economy.
“Once it starts, it takes much more from a policy perspective to stop it than to prevent it from happening,” she added.
On its own, a managed default or even messy collapse of Evergrande would have little global impact beyond some market turbulence.
Senior Global Economist, Capital Economics
Taken on its own, the financial or social risks associated directly with Evergrande itself are actually “reasonably manageable,” Zeng explained. She cited the fragmentation of the Chinese property market as a reason behind this.
“Despite Evergrande’s size – we all know it is the largest developer in China, probably the largest in the world – [it] still accounts for only 4% and now it’s even less of the total annual sales market,” Zeng said. “The debt, particularly the onshore debt, is well collateralized.”
China’s ‘Lehman moment’?
Some economists have warned that the collapse of Evergrande could become China’s “Lehman moment” – a reference to the bankruptcy of Lehman Brothers as a result of the subprime mortgage crisis, which triggered the 2008 global financial crisis.
However, Capital Economics’ Simon MacAdam described that narrative as “wide of the mark.”
“On its own, a managed default or even messy collapse of Evergrande would have little global impact beyond some market turbulence,” MacAdam, a senior global economist at the firm, said in a Thursday note. “Even if it were the first of many property developers to go bust in China, we suspect it would take a policy misstep for this to cause a sharp slowdown in its economy.”
As of Friday’s close, the company’s Hong Kong-listed shares have plunged more than 80% year-to-date.
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