Individuals and corporations who bought real estate way back are now either selling the property for huge sums to a developer or looking at ways to develop it themselves as the clamour for somewhere to live grows louder in major cities
Ben Woolfitt has the perfectly rumpled look of a Canadian abstract painter of international renown. With his shock of white hair, black-rimmed glasses, green pants and a t-shirt that rides up over his belly when he sits at the kitchen table in his groovy, two-storey painter’s loft, it’s hard to imagine the artist hanging his easels anywhere else.
On a good day, his canvases sell for US$20,000 a pop, but those good days have become increasingly rare. The 78-year-old sold a grand total of zero works at a recent showing at a New York gallery, although he feels even worse for some of his abstract painter friends of even greater international renown who aren’t selling any paintings either. Even when they do, they are letting them go at steeply discounted prices.
During the pandemic, Woolfitt stopped sleeping. Tied up in anxious knots, his creativity abandoned him. But now he finally feels free. Not free of fretting over an art market that has gone down the tubes, but free of the artist’s loft and the low-rise building he owned on Queen Street West in Toronto until recently.
The artist may indeed appear rumpled, but he has been preternaturally wise with his pennies. As a teenager, he helped keep the accounting books for his father, a credit union manager in Saskatchewan farm country. He had enough confidence in his money skills that he bought the Queen Street building in 1997, despite a real estate agent telling him not to because it was a “bad area.”
“It was either going to be a great investment for me or a not-so-great investment,” he said.
The neighbourhood is still pretty scruffy, but the $1 million Woolfitt paid in the 1990s for his building, which had been home to a clothing manufacturer that went bust, and that he then converted into 10 residential units with eight commercial spaces at street level, is peanuts compared to the $24.25 million Vancouver-based QuadReal Property Group Ltd. Partnership recently paid to take the property off his hands.
QuadReal reportedly plans to build condos on the site at some point, but at this point, the artist who is struggling to sell paintings has struck it rich.
“For three years, I had to take something to help me sleep, but now, not only am I sleeping well, I am waking up refreshed,” he said. “I have started three new series of drawings, and so the impact of the sale has been immediate.”
“I think there’s a really big opportunity here to address the housing shortage,” Mike Moffatt, a housing policy expert at the Ottawa-based Smart Prosperity Institute think tank, said. “We are kind of running out of places to build, and as land grows more scarce, we need to look at some of these people that you wouldn’t normally think of as being housing developers and see them as an important piece in solving the puzzle.”
Urban renewal
Enter non-real estate corporations such as Leon’s. Chief executive Mike Walsh has been getting bombarded by calls from real estate big shots ever since the company announced a plan, pending City of Toronto approval, to build 4,000 homes, a new corporate headquarters and a new Leon’s store that will be about half the size of the old HQ and big-box store that currently occupies a 42-acre parcel of land in the city’s northwest.
The Leon family purchased the property in the 1960s, but a decent chunk of the acreage could still be mistaken for a farmer’s field, albeit one bordered by a highway. If you’re wondering what it cost way back when, you’re not alone. Walsh shares the same curiosity, but he hasn’t been able to find a record of the original sale. For some historical perspective, the average house price in Toronto in 1967 was $24,000; now it is more than $1 million.
“When the Leons started buying properties in the 1960s, their philosophy was to buy a big piece of land, build a big store on it, build a big warehouse and the people would come to shop,” he said. “It turns out they had great foresight in picking the right pieces of land.”
Leon’s owns another 32 acres in a suburb west of the city as well as several chunks of property in Toronto’s east end and more, and all of it could potentially include a housing component someday. The company’s real estate holdings — without any housing currently on them — is valued at $260 million. The decision to consider building now instead of 1975 is a simple case of doing the math and factoring in modern consumer habits.
Once upon a time, someone drove to a showroom to pick out a new couch. Today, they can shop for it online, saving themselves the headache of battling traffic to get to a store. That allows furniture stores and other companies to optimize their retail footprint for the e-commerce age, given that many already own the land their stores are on, and also maximize the financial return on the land that is left over by developing it.
The added perk in all this for a furniture retailer is that all those new homeowners and renters who are moving in to a mix of high rises, low rises and single-family homes in northwest Toronto are going to need somewhere to sit. Guess whose new store will be within walking distance of their front doors?
“We can even deliver the couch to their door,” Walsh said.
Stripping things down
Of course, delivering on new housing is not quite so easy. Part of what is feeding the Canadian housing crisis is the tangle of regulations around getting anything new built, Moffatt said. Lately, he finds himself thinking about mom-and-pop shops or family-owned strip malls.
The Leons aren’t the only ones buying up land. Drive through any Canadian city and you’ll find plenty of strip malls, dog-eared blasts from the past that perhaps look a little bit sad, but still have stores operating to provide their owners with a rental income stream.
Moffatt suggests a simple, regulatory fix that seems obvious and is already in place in some American jurisdictions. The government should embrace a tax model in which property owners receive a tax break when selling to a developer as long as the new build includes a certain number of housing units with a portion earmarked for affordable housing.
Another idea that Canada has not really picked up on, he said, is an arrangement where a strip mall owner and a developer partner up on a project. The mall owner hands over the land, the builder builds and, once all is built, the mall owner still owns the land, gets a new mall and perhaps the first two floors of the condos built above it, while the developer keeps everything above that. A win for both businesses and a win for people who need a roof over their heads.
“The Americans have tax policies that encourage this kind of redevelopment,” Moffatt said.
Another important consideration, he said, is that cities in desperate need of housing can be hesitant to embrace houses being built, depending on location. Leon’s lands were originally zoned as workforce land, and the process of getting them rezoned as a “regeneration area” took several years.
Any perceived foot-dragging can largely be chalked up to cities and provinces generally wanting to have a surplus supply of empty, workforce-designated lands at their fingertips, just in case the next Tesla Inc. shows up and says they want to build a new manufacturing facility and office complex close to a major highway.
Neither Telus nor Canadian Tire responded to interview requests to discuss their corporate vision around property development, but pop down to the latter’s flagship store in midtown Toronto, which has been in the company fold since 1922, and look up. It is not hard to imagine what is coming next.
The company’s real estate spinoff, CT Real Estate Investment Trust, is the developer behind a proposal to build two new condo towers on the site, with a refurbished retail store at its base.
Several additional Canadian Tire properties in Toronto and beyond are similarly being eyed for intensification, while Telus took stock of its land holdings during its transition from copper-wire-based networks to fibre optics and found 200 properties with the potential for development and a gross value of $3 billion — and that’s prior to anything new being built.
In Toronto, commercial real estate folks speak in near-mythical terms of a fellow named Richard Zoppas, who also did not respond to interview requests, but, if the off-the-record whispers are accurate, he did sell an industrial building he bought in the city’s east end for $1.4 million in 1985 for $100 million to Metrolinx, an Ontario Crown transportation agency.
It is unclear what the future may hold for Zoppas’ old building, but it is a two-minute walk to public transit, directly south of a trendy neighbourhood and has thousands of square feet of leasable “flex/work” office space that, with a little rezoning acrobatics, could become something else, such as, say, housing.
Unlocking a property’s potential starts with owning it. After Woolfitt bought on Queen Street West, he spent a few years transforming a place that had fallen into disrepair into an address with a full slate of tenants who were paying him rent, an artist’s pad and an art supply business that served as a thriving side hustle.
A painter needs to eat, after all, and what the building afforded him was the luxury of pursuing his true passion while having enough spare change left to buy a Porsche and a getaway pad in New York.
Now that the building has been sold, Woolfitt admits to harbouring some mixed feelings about the transaction. On one hand, he never has to worry about money again, but on the other, it means he has some work to do on his new place, a building he recently bought closer to downtown for $3.5 million with “four walls and a bathroom” and that he plans to convert into a groovy artist’s pad.
Queen Street West is going to live on without him, he said, and it is sure to take on new vibrancy when QuadReal builds condos on the site. As he closes the door on a chapter of his life, the artist offered three simple words in the form of advice: “Buy real estate.”