It's not easy to continue developing at a rapid pace amid labour shortages, financial and other uncertainties. However, that is what the industry must do, senior executives agreed during the closing panel May 30 at the Land & Development Conference.
“There's opportunity with respect to anyone who's working in the area of construction and technology innovation,” DiamondCorp senior vice-president Renée Gomes told the forum attendees while discussing opportunities and challenges within the sector.
“We need to build more, we need to build faster and regulations alone are not going to get us there.
“So whoever is able to innovate there I think is going to be a winner over the next few years.”
“The opportunities are unzoned sites, vendor take-back mortgages and structured deals,” Colliers executive VP Steve Keyzer said. “So that's what our team is focusing on.”
Development sites and a potential lack of financing
Graywood senior VP of development Neil Pattison said a glut of zoned sites have come forward in Toronto from developers who aren’t going to take them to the finish line and, therefore, are looking to sell. But, there's often a pricing gap to overcome.
“We’re in this pregnant pause where the vendor doesn't want to drop the price, but we're not prepared to pay more because, quite frankly, we're still dealing with what we have and trying to bring that to the market and there’s no market at the moment,” Pattison explained.
“The groups that have the forethought and the diligence and understand what it takes to bring a zoned site to the market, they're going to succeed. And for the speculative land flippers, it's going to be a bit of a hard time.”
Another issue for some could be financing.
“The availability of capital is really going to be a big threat to what we're going to see in terms of development productivity going forward,” CBRE vice-chairman Casey Gallagher told the conference.
“We're certainly seeing it when I talk to my counterparts south of the border that the banks have dried up and there's not much available capital to do commercial refinancing on typical traditional assets that are already cash-flow-stabilized.
“We have a cliff of debt exposure on the office side of things that could create a lot of ripple effects that could have a meaningful impact on commercial real estate.”
Anthem Properties senior VP Tony Vadacchino agreed there are challenges with both debt and equity capital and said banks have become more selective.
He pointed out, however, the Canadian banking system is less risky than its American counterpart and the industry has navigated past periods of reduced available capital.
Keyzer said transactions are still happening but are taking longer to close, while Gallagher added deals are more likely to get done with unentitled sites that have more flexibility.
Developers haven’t dropped condominium unit prices despite sales being down 60 to 80 per cent, according to Gallagher.
He continues to believe Toronto is a robust condo market which will weather this “correction” and be in good shape.
Larger labour pool needed
Pattison is concerned with not having a sufficient number of construction workers available to build 150,000 homes annually over the next 10 years as the Ontario government has targeted and he’d like a change in Canada’s immigration policy to help alleviate the issue.
“We're struggling to get buildings across the finish line and it’s taking longer to complete buildings,” Pattison said. “We need manual people to hang drywall and that's not what we're advertising in immigration policies.”
Pattison added efficiency has decreased and the labour market has been diluted. Labourers who are available aren’t as skilled because they’re spread too thin since many young people aren't interested in manual labour.
This is also happening, to a degree, with shortages of skilled consultants and development managers, he said.
While regulatory changes have been introduced to help alleviate housing supply challenges, Gomes is concerned about the amount and pace of change being seen.
She thinks there’s a need for more skilled planners and people who will be able to successfully navigate their way through these changes and process applications in a timely manner.
“Everyone's benefiting from the million people coming in, but I think different cities, Vancouver included, are struggling with absorbing (new immigrants) in terms of delivering product, labour shortages and construction costs,” Vadacchino said.
“But there are other parts of the country that are also seeing some of that immigration and don't have the same type of challenges.”
Speeding up building approvals and deliveries
Osmington Gerofsky Development Corp. executive VP of operations and project execution Laurie Payne, who moderated the discussion with TAS chief development officer Hugh Clark, asked what the real estate industry can do to help the building approvals and delivery processes move faster.
Gomes thinks the public and private sectors need to become better partners.
“A huge part of that is bridging the gap in understanding, with the public sector understanding the realities of what it takes to actually get a project off the ground, how you finance things and the real practical considerations that you have to have when you underwrite something,” Gomes noted.
“But there's also a lot of learning to do on the private sector side about the policy objectives that the public sector is trying to achieve.
"If we have a little bit more constructive dialogue, I think we can find more opportunities for areas in which we can be aligned.”
Gomes said municipalities face major financial crises in the aftermath of COVID-19 and the real estate industry should assist in lobbying the federal government to get them the resources they need to create more housing.
“It's just, frankly, what our cities need,” Gomes said. “But it's also that if they don't get it from the federal government, they will inevitably be coming to the development industry to look for it.”
Vadacchino would like to see increased artificial intelligence adoption in the planning process to help speed things up and said a pilot project is in its early days in Vancouver.
Avoiding cutbacks on sustainability measures
When developer profit margins are slim, Clark said there’s a tendency to dumb projects down from a sustainability standpoint to boost returns. He asked if there’s an alternative to this practice.
“ESG (environmental, social and governance) is great, and I'll tip my hat to the City of Toronto for its Toronto Green Standard,” said Pattison. “They've done a lot of good and we're all held accountable to that.
“But to our investors, if they want returns or they want ESG, they want the returns first.”
“At some point, governments need to choose areas in which they want to see growth and the areas in which they want the development industry to invest and to incentivize that,” said Gomes.
“Sometimes that means just focusing on affordability and in other places that might be the environmental side of it.
“They should also look at things they can start doing to de-risk some of that and to invest in the people who have ideas that might otherwise be too risky for the development industry on its own to take the first crack at.”