JAC Condos, at the corner of Jarvis and Carlton Streets, is a joint venture between Graywood and Phantom Developments. (Courtesy Graywood)

Graywood Developments has closed its ninth private real estate development fund and used part of the proceeds to buy a Toronto site which it plans to rezone in order to build a residential tower.

The acquisition of the site, on Church Street at Dundas Street East, raised a few eyebrows not because of the price itself, $73 million, but for how much the value had escalated in four years since it had been purchased by Couche-Tard as part of a portfolio acquisition. It had been valued at about $4 million during the portfolio purchase.

Graywood raised $100 million from Canadian financial institutions, pension plans, family offices and high-net-worth individuals for Graywood Fund IX Limited Partnership. That’s on top of the $495 million raised through the company’s first eight funds.

“That amount of equity has been stretched quite a bit further through partnering with other folks,” Graywood president and chief executive officer Stephen Price told RENX.

241 Church St. acquisition

The Church Street property is the current home of an Esso gas station and Circle K variety store at 241 Church St., at the northeast corner of Dundas. The current use of the property is a key factor in the valuation when it was acquired in 2016 compared to today.

“Whenever you buy a large portfolio of assets, there’s an allocation of value for accounting purposes that’s driven by more factors than just the inherent value of any one parcel,” Price explained. “Effectively, they were buying it as an operating business and the vendor was selling it as an operating business, not as a development site.”

Fast forward four years to Couche-Tard’s sale of the site.

“There wasn’t a valuation based on development density, which is the normal course for acquiring development land in any city. Our valuation was quite an attractive value relative to other competing sites and in fact we were able, as a result of the uncertainty in the market, to negotiate a more favourable price from the original price that we had tied the site up at.

“So on first glance it may appear to be a significant appreciation in value, and it certainly would be a significant appreciation in book value on the part of the vendor. But in the context of who they bought it from, how they bought it and what they were buying, it was not a development site but an operating gas station site.

“That explains the difference.”

Plans for 241 Church St. site

Price was impressed with the 241 Church St. site, citing great Walk Scores and Transit Scores as well as proximity to Ryerson University and places of employment.

Low long-term interest rates, the expectation that Ryerson will increase its number of international and domestic students, and that the federal government will increase its immigration levels to make up for this year’s COVID-19 shortfall also attracted Graywood.

The site’s physical configuration on a corner allows access from three sides to make construction easier.

The site is zoned for mixed-use and work is underway to apply for rezoning to help bring Graywood’s vision to life.

Initial plans call for a 53-storey tower with approximately 570 residential units and service retail at grade. Things are still in the preliminary design phase and Graywood is exploring whether to build a condominium or purpose-built rental apartment.

“We’ve received very favourable feedback from the city as to their acceptance of our preliminary development plans,” said Price. “We’ve allowed ourselves a two-year planning horizon for the site, which we think will allow us to get into the market after this pandemic has been dealt with and the market, we expect, will be very healthy again.”

Toronto’s high-rise housing market

Price is confident the downtown Toronto high-rise housing market will rebound significantly post-pandemic.

“We’re big believers in the Toronto marketplace for housing despite the current slowness in the market for rentals and to some extent for new condo sales,” said Price.

Downtown Toronto is a global draw for people and companies looking to relocate, according to Price, and he thinks its prospects will dramatically improve once immigration levels return to previous levels, or increase.

“You simply can’t replace the amenities, job opportunities and the hospital access of downtown,” said Price.

Closing Graywood Fund IX

Graywood Fund IX was launched in 2019. The company was prepared to close it in the spring but extended the closing date to September due to COVID-19 concerns.

The Toronto-based private real estate investment management firm kept in regular touch with investors and prospects through spring and summer. It also hosted webinars and brought in third parties to provide updates on what was happening in the market.

While many investors had previously worked with Graywood, Price said it spent more time with newer investors to make them feel comfortable.

“Every single one of the investors that committed to invest with us in the spring maintained that commitment and closed with us in the fall and we actually picked up some new investors,” said Price. “Investors recognized that, with the pandemic and its effect on the market, there might be some pricing dislocations and it could present some opportunities to buy land in the GTA at prices that might be slightly below prices that existed pre-COVID.”

Future Graywood acquisitions

Graywood is marking its 35th anniversary in 2020. Over that time it has managed 51 projects representing $7 billion in development value and 29,100 units.

It expects to acquire another one or two downtown Toronto sites using proceeds from Graywood Fund IX.

While it’s working on those transactions, nothing is yet under contract.

“We still have time to increase the size of Fund IX,” said Price. “Typically these funds have a one-year time horizon from the first close to top up the fund.

“We have a number of very interested investors who were unable to commit this fall and we’ll be approaching them again over the next six to 12 months to try and formalize additional commitments.”

Graywood’s other Toronto developments

Graywood has 13 active projects with 4,200 residential units under development, representing $3 billion in development value.

SCOOP Condos was the first boutique residence of its kind in Toronto’s West St. Clair West neighbourhood, offering 72 suites over six storeys. Building on that success, Graywood introduced the 12-storey, 259-unit SCOUT Condos, which is under construction.

Wonder Condos is a collection of 286 loft, condo and townhome units under construction on the site of a former Weston Bread factory at 462 Eastern Ave. in Leslieville. The project is being developed in tandem with Alterra.

Peter & Adelaide, with 695 residences and about 45,000 square feet of retail and office space at grade and on the second floor of the podium in Toronto’s Entertainment District, is also under construction.

The nine-storey 250 Lawrence condo, just east of Avenue Road in Bedford Park, will commence construction in December.

“We still have some (available) units at all of our sites,” said Price. “Sales have slowed. There are less transactions happening market-wide at this juncture, but they did sell reasonably well all through the COVID period, so we’re quite pleased with that.”

In the sales and planning stages

Sales for JAC Condos launched during COVID-19 apprehension. Price said the 35-storey, 489-unit building has a number of smaller suites and has struck a good balance of mix and price (starting in the $400,000s) which has been well-received.

Graywood and Phantom Developments are 50-50 partners on JAC Condos.

Parliament Street, a 32-storey condo with 450 suites at the gateway to Toronto’s Distillery District, is going through planning approvals and expected to go on sale next year.

Graywood has proposed a 15-storey mixed-use project called 506 Church Street that would include 173 condo units and 11,539 square feet of retail and commercial space. Sales are expected to launch next year.

“It’s in the heart of The Village and we’re working very carefully with the local community associations to make sure we’re sensitive to the needs of that community,” said Price. “Our site houses a couple of very prominent restaurant, bar and entertainment venues, so we’re very conscious of that.

“We’re working with existing tenants to try and accommodate them in the future.”

Graywood’s Oshawa developments

Graywood sold all 56 townhomes in its Oh! Towns project in Oshawa, just east of Toronto. Construction is underway and the first homes are scheduled to be delivered in April.

Park & Lake is the companion development to Oh! Towns. It will include 170 single and semi-detached homes directly abutting Lake Ontario. It’s going through the planning approval phase and it’s hoped sales will launch next year.

“There’s a high demand for single-family housing, particularly where you can offer value propositions that are within reach of Toronto,” said Price.

Graywood’s Calgary developments

Graywood is also active in Calgary, where construction has started on The Theodore Condominiums in the Kensington community. The 10-storey condo will feature 115 one-, two- and three-bedroom suites and is slated for completion in 2022.

“Sales are progressing there,” said Price. “Confidence seems to be returning to Calgary.

“There’s more of an end-user market in Calgary and they really appreciate seeing a project come to life. They like to see activity on new projects before they make commitments.”

Eau Claire Residences is located between 1st and 2nd Avenues and close to the Bow River, Peace Bridge and Prince’s Island. Sales will launch soon for the mid-rise condo.