In the midst of a grueling real estate market, industry pros gathered on Thursday at Informa’s Land and Development Conference to discuss the challenges – and wins – they’re experiencing right now.
From the effect of Trump’s tariffs to high levels of distress to reasons for optimism about the Canadian market, here are Green Street News’ key takeaways from the event.
Transactions down, prices uncertain
The overarching message at the event: Land sales may have declined, but they haven’t disappeared altogether.
“We’re seeing some land transaction activity, but not a ton,” said CBRE’s Casey Gallagher. Deals can still be put together, he said, particularly for purpose-built rental sites, but how transactions are structured is important.
With little demand, prices have fallen dramatically. But where they’ve landed isn’t entirely clear.
“Are they $25/ft, $50/ft? There’s no point in debating that,” said Jeremy Wedgbury, executive vice president of commercial mortgages at First National Financial. “Are they $200/ft, where they were five years ago? I think the answer to that is absolutely not.”
The uncertainty around land values feeds back into why developers aren’t stepping up to buy property, said Andrew Tong, managing director of Integral Strategic Real Estate.
Receiverships don’t tell the full story
Receiverships have splashed across the headlines over the past year, and Harvey Chaiton, partner at Chaitons LLP, says the Toronto receivership courts are the busiest in the country with plenty of real estate insolvency cases to handle.
Noah Goldstein, managing director at KSV Advisory, which handles restructurings and valuations, says his firm is “picking up a phone call every single week on a real estate matter.” At this time last year, KSV was advising on about $1bn worth of distressed real estate. Now, that number has grown to $7bn.
But some panelist said the number of receiverships is not representative of the total number of distressed properties. Smaller lenders, in particular, are worried about blowing up their funds if they file for receivership. Goldstein said one lender he spoke with has a few hundred loans issued. Roughly half are in some form of default, but only two are under receivership.
For those that are in receivership, the bid-ask spread has grown, and lenders, not wanting to incur further losses, are often opting to keep the asset in receivership rather than sell. Gallagher said the next shoe to drop in the marketplace is land being “pushed out the door at market-adjusted prices.”
Pending supply issues
Today’s condominium market is, as Gallagher put it, “a block of ice.” Tong noted that in Vancouver alone, there are 2,300 unsold condo units on the market, with another 2,500 units on the way. He pointed to a development in nearby Surrey that had to sell its units at a 25% discount, likely causing the developer to lose money.
These conditions, however, are expected to change in the next two to three years. Multifamily development has slowed, if not stopped altogether in some markets, as high land, construction and development charge costs prohibit projects from penciling out.
On top of that, Benjamin Tal, deputy chief economist at CIBC Capital Markets, says that population growth is likely to be stronger than the Canadian government has assumed, with CIBC predicting 1%-1.5% growth per year from 2025 to 2027. Both factors will likely lead to further housing shortage.
“There will be a problem two years from now, and we will be responsible,” Tal said. “I met with the mayor of Toronto, and I told them ‘Listen, how much does it cost for development charges per unit in Toronto?’ They said about $75,000. I said, ‘Okay, I don’t have my calculator, but how much is $75,000 times 0?'”
“If you don’t build, they don’t get the revenue, so cutting development charges costs them nothing,” he added.
Wedgbury noted that in three years “there will be an opportunity for anyone delivering.”
A need for disruption
Affordability – or lack thereof – was a key topic for the day, with housing prices in Canada’s major cities still well beyond what many Canadians can afford. Jamie Ziegel, founding principal at real estate advisory firm Ziegel Advisors, highlighted the need for new approaches to bring down costs.
“My opinion is that as an industry we need more innovation and disruption,” he said. “I think there’s great demand for condos in Toronto, just not anywhere near the price we can build them at right now.”
Ziegel pointed to other industries like space travel, ship building and package deliveries that have undergone significant innovation and subsequent cost savings. A space shuttle built by NASA in 1991, for example, cost $1.5bn. The most recent ship built by SpaceX cost $67m, he said – a more than 90% reduction in costs.
“To build an office building, industrial building, apartment building, we’re 150-200% more than we were 30 years ago,” Ziegel said. “I think it’s on us. I think we’ve got to embrace what this world is providing to us now through computers and AI.”
Trump tariffs and Canada optimism
The topic of U.S. President Donald Trump and his tariffs came up in virtually every panel and presentation of the day. Some experts felt the tariff uncertainty affected Canada as an investable market. Others, like Tim Hudak, partner at Counsel Public Affairs, said that Trump will ultimately be good for Canada.
“I think it’s going to make us more attractive to talent – talent that may be afraid of the instability in the States, particularly from countries President Trump may view as unwelcome in the U.S.,” Hudak said.
He also pointed to the pressure that has been put on Prime Minister Mark Carney and the premieres to knock down trade barriers within Canada.
Amy Erixon, principal and president of global investment management at Avison Young, said that looking on a global scale, she has confidence in the Canadian market.
“I think that the Canadian market is remarkably stable, and we have a lot of liquidity compared to the rest of the world,” she said.
When asked what green shoot or bright spot she’s seeing right now, Christina Iacoucci, managing partner and head of Canada for BGO, said, “I think the green shoot is just Canada.”
“We’re seeing that from a global perspective, we’re seeing it within Canada,” Iacoucci added. “It’s not something that will necessarily last forever, and we should take advantage of it while it’s here.”
