When it comes to Canadian real estate investment, Dream Unlimited is undoubtedly at the forefront. With roughly 400 properties across four provinces, spanning office, industrial, retail and residential assets, Dream has continued to grow its holdings and invest in new developments amidst changing market dynamics and rapidly rising costs.
Tsering Yangki, Dream’s executive vice president of real estate finance and development, spoke with Green Street News about her firm’s approach to recent headwinds, the benefits of strategic partnerships and how all levels of government can step in to help boost development, particularly regarding affordable housing.
Can you give me an overview of how your role has changed on the financing and development side over the past few years as the market and investment priorities have changed?
I’ve been in the industry for almost 20 years now, so 2007, 2008 we saw all of that, but I think this time what’s different is just the confluence of all the issues and crises that happened together. You have the intersection of social issues, the climate, and you have the economic and financial crisis, so the solutions that we’ve had historically are something we have to really rethink.
With that being said, we’re seeing a lot of opportunities, too, as to how we need to be more creative and innovative because we’re seeing that things we never felt would intersect are starting to intersect, and that forms new allies and new partners.
For example, the healthcare industry and the real estate industry — the healthcare sector, they need staff, and to attract that talent, they’re facing a housing issue. So we’re seeing if we can be part of that solution. People have said we need market rental and affordable rental, but they’re not being very specific on the demand. So being more data driven has been one of the aspects really helping us to form those decisions and form different alliances.
Dream obviously has a fairly large office portfolio. Is office something you’re still actively investing in, or are you more so looking to refocus and restrategize that portfolio?
I’m not sure about you, but I like coming into the office and being in the office and collaborating and meeting my team members, so definitely there’s going to be a need for office. How much and in what form? That’s for us to see. Every industry has transformed and changed through the years depending on what the consumer needs.
Our office portfolio in downtown Toronto — that’s where we have most of our office buildings — they’re not large office buildings. They’re older with smaller floorplates around 5,000 to 7,000 sq ft that would cater to specific tenants, and I think that’s where we see opportunity.
The other component is that we’ve been able to make sure that they are amenitized, so really good restaurants down below, retail offerings, etc.
But that being said, some of the office space that we’re looking at, we’re definitely exploring conversion, but also looking at if an office has to be replaced with new development, ensuring that we can replace it with the current demand need, which is residential rental.
Has there been any push here in Toronto from the developer side to get office conversion incentives like the one in Calgary that quite a few developers have taken advantage of?
We have a conversion that we’re looking at in Calgary, and I agree with you, the incentive is fantastic. The city really responded in terms of how they can make use of that conversion opportunity.
Here, in different municipalities I think we have been pushing — there are different groups and different industrial associations really pushing — but you have to also recognize the fact that not every office is right for a conversion. But I think if the municipalities provide incentives, it would really encourage the industry to respond.
In terms of actually getting units built, it seems like there are constant headlines about developers with projects in the pipeline that they’re having to just sit on because of market conditions. Are there any that you’ve had to pause or reconfigure, from condominium to rental, for example?
For us, we’ve always been building condos and rentals. We are launching projects amounting to around 1,400 units in Saskatoon, Calgary, Ottawa and Gatineau. But we have no projects launching here in Toronto because the [development charges] are so high.
The economics don’t work, and it’s not prudent for us to commence on any projects when the financial conditions are not there. I do hope the city as well as the province would recognize that it’s pens down for so many developers here in Toronto, where there’s the greatest need and they will start being more efficient and effective in terms of approvals and the DC fees.
Is that something you’re seeing other developers do as well, avoiding Toronto?
Those who have the luxury of working in other provinces, I think they’ll be pushing forward with those projects. Here in Toronto, I’ve seen a lot of my peers with pens down because it doesn’t work. How much longer they will have their pens down, I think that’s something the city needs to think through.
You mentioned partnerships earlier, and I know Dream has done quite a few. What’s generally the catalyst or motivation for wanting to engage in a partnership on a project?
I think a few things. One would be that a partnership with other private entities is primarily driven by shared risk, shared reward. If the size of the project is large, you want to make sure you have an equal partner.
The second would be really complementary skill sets, experience and expertise. A lot of partnerships, from our lens, we take them with a sense of humility that we’re very good at this, but we need a partner who can counterbalance that expertise on the other side.
Our partnerships with not-for-profits have been very interesting. That has really been driven by our partnership with the governments. In Canary Landing, we have partnerships with two other private entities, but it’s on provincial land with a 99-year lease.
We have the federal government providing low-cost financing, and the city has provided DC waivers through the Open Door policy. On the delivery of affordable units, we’re partnering with a number of nonprofits.
That collective partnership model has allowed us to deliver at scale. The not-for-profits do not have the cashflow upfront on the predevelopment side, so that’s where we step in and then collectively together build the assets. Upon completion, the assets get transferred over to the nonprofit.
During an Urban Land Institute panel earlier this year, you mentioned reconciling the need for building affordable with the current economic environment — can you expand on that a bit more? The impression most developers give is that it doesn’t pencil out.
That’s true, it doesn’t pencil out. I think that’s why we need the government to provide DC waivers but also ensure there is predictability and certainty on the financing that CMHC provides because the costs have gone up but rents have not gone up as much as the costs.
We’re seeing a lot more developers looking at rental and really exploring the opportunities. But in terms of costs, between September 2019 and March 2024, the DCs for a one-bedroom in Toronto increased by 60% and hard costs increased by 45%.
At the same time, the finance cost per sq ft in our budgets increased from $15 per sq ft contributions to $70 per sq ft. And then market rents saw a 14% increase and affordable rents a 25% increase, so there is not a direct correlation.
With interest rates coming down, is there any expectation that the condo market will pick back up and developers will be more interested in condo again?
We need all asset classes, and homeownership is a key component, which condo allows. No one can be right with any prediction. I don’t know when it will come back, but I feel there will be demand because people will want to own their homes and condo allows for that.
And there will be rental products, but there has to also be a cultural shift that renting is okay.
