Late last month, the City of Toronto announced a new private-public development partnership: The city’s real estate arm, CreateTO, and developer Collecdev-Markee are teaming up to build 447 new, purpose-built rental homes in midtown Toronto, 30% of which would be affordable.
The development would combine two adjacent properties — the city-owned 275 Merton Street and the Collecdev-Markee-owned 267 Merton Street — to allow for the sizable build. Collecdev-Markee plans to transfer ownership of its property to the city, which then would lease back both sites to the developer on a 99-year term.
Jennifer Keesmaat, chief executive of Collecdev-Markee and former chief city planner for Toronto, and Vic Gupta, CEO at CreateTO, spoke with Green Street News to discuss their plans, as well as the challenges and opportunities that come with building affordable rentals in 2024.
Can you tell me how this collaboration came together?
Keesmaat: Part of the driver behind advancing this partnership was a recognition that an assembly of our property with the City of Toronto property would enable a much more significant development and, as a result, much more housing than if we were to only develop our property on our own. That was really the impetus behind seeing this as an opportunity to deliver on the mayor’s priority of advancing a significant amount of purpose-built rental.
Gupta: We get approached by lots of third parties to look at opportunities, but when somebody approaches us that owns the adjacent property and can demonstrate [that] the sum total of the two properties together is worth more than each of them on their own, then we’re motivated to do something. The other thing is that Jennifer and her team were very flexible, and we were able to design something that was quite customized.
When somebody approaches us that owns the adjacent property and can demonstrate [that] the sum total of the two properties together is worth more than each of them on their own, then we’re motivated to do something.
Vic Gupta, CEO of CreateTO
And lastly, the mayor’s housing plan is really built around the city maintaining ownership of its land and entering into long-term land leases, and another feature of this development opportunity is that Collecdev-Markee is actually transferring their site to the city, versus the city selling its site to Collecdev-Markee. Then, we will enter into a 99-year land lease with them, and they will own the building.
What made this site a good candidate for a high-density rental housing project?
Keesmaat: There were a whole variety of critical success factors around this site that you wouldn’t necessarily find on other sites that might seem to have similar characteristics. For example, in areas of the city where rents are somewhat depressed, this type of development wouldn’t necessarily work. It does work, in part, because of the rents in this area.
We can also add a significant number of people that will have a very high quality of life, including excellent views and access to green space, while at the same time not adding more cars — the parking ratio is going to be very low because this is truly a complete community where you can do almost everything you need to do within the context of daily life by walking or using transit or cycling. There are multiple grocery stores within a 500-meter radius, and Yonge and Eglinton is just a stone’s throw away.
In addition to that, very importantly, we’re building a significant amount of affordable housing, so from a complete community perspective, delivering a variety of housing types for a variety of families is also a critical part of the overall concept.
You’re targeting 30% of the project’s units to be affordable, but we often hear from developers that building that much affordable just doesn’t pencil. How critical was the city’s help in that regard?
Keesmaat: This is where this is truly a partnership, because one of the really important levers in the structure of this overall deal is the land lease. We worked really closely with CreateTO on creating a structure that would not only enable that 30% affordable housing, but importantly, they’re deeply affordable, so at about 50% of market rent. That’s really, really rare, and, as you’ve said, on a typical development project, that’s nearly impossible to achieve in 2024 for a whole variety of reasons, including the high cost of borrowing during the construction period.
This is where this is truly a partnership, because one of the really important levers in the structure of this overall deal is the land lease.
Jennifer Keesmaat, CEO of Collecdev-Markee
The stars kind of aligned because the federal government came out with their announcement forgiving the GST on purpose-built rentals and the province followed suit with the HST. It’s wonderful when all the stars align, but they don’t usually fall into place quite so beautifully as they did on this site.
There have been a lot of these kinds of partnerships recently between private developers and the city to get housing built. Can you speak to the importance of those partnerships from the city’s perspective?
Gupta: The fact is, we need everybody growing in the same direction. You know, this is an all-hands-on-deck challenge. This is a generational challenge. The city is growing, our immigration levels continue to be strong, and we know that we have not only an affordability crisis, but we have a housing crisis in general. What we’ve seen with [Toronto mayor Olivia Chow] and her approach is she’s ensuring that we continue to build capacity and support all aspects of the housing continuum, but we’re not going to hit anywhere close to the kind of numbers we need to hit in terms of housing development without engaging the private sector, their expertise. It’s not just about engaging them to do it, but to engage them to take the risk, engage them to borrow from their balance sheet, engage them as experts.
Keesmaat: I think that something we have to get a little bit honest about in our city is that, for some reason, there’s been quite an antagonistic relationship historically with the development industry, whereby a developer shows up, we want to build some beautiful thing, and the city sort of roughs them up — and that’s something that really needs to change. There needs to be a much more collaborative approach. To Vic’s point, building housing is not easy, and we have an industry that is expert, that knows how to get housing built. A worst-case scenario for our city today would be for developers to be sitting on the sideline.
I think that something we have to get a little bit honest about in our city is that, for some reason, there’s been quite an antagonistic relationship historically with the development industry.
Jennifer Keesmaat, CEO of Collecdev-Markee
Every affordable home that’s been built in the city over the past 20 years was actually built by the private sector. The public sector has not been building anything, so bringing the industry to the table in a more substantive way is really essential in this moment.
When it comes to getting these projects built, have you found lenders are more willing or less willing to provide funding for a development with a big affordable-housing component like this?
Gupta: I think certainly institutional investors have more and more appetite and interest — they’re being asked to make investments by their investors and their pensioners and so on in ESG. There’s a collective attitude I see in not just the development community, but the investor community, that there’s a responsibility we all have to ensure that we’re building the kind of city we all want to live in and that provides an opportunity for everybody.
Now, having said that, you still have to hit the return profile. Maybe there are a few basis points that they’ll give in a discount, but these deals still need to hit the return profile for those investors. But I think there is not only a greater appetite, I think there’s more and more of a demand from long-term investors.
