Yonge and Eglinton’s billion-dollar makeover

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Looking out the window of his office in the Yonge Eglinton Centre, Ed Sonshine sees a lot of construction going on.

"This is a happening place," says the 66-year-old chief executive of RioCan Real Estate Investment Trust.

In many ways, it's the perfect vantage point for the future of big development in Toronto. Yonge and Eglinton is seeing a surge of office and condo construction.

The number of active new condo units in North Toronto rose 166 per cent in the last three years, significantly outpacing the growth rate of the western part of downtown, where cranes are ubiquitous.

A big part of the appeal? "Transportation," Mr. Sonshine says. When RioCan bought the Yonge Eglinton Centre six years ago, Mr. Sonshine became so convinced that the area was set for a resurgence that he moved the company's own offices into the building, from their previous location in a King Street tower in the financial district.

"We didn't know for sure about the Eglinton transit route, but they've been talking about it for 100 years, so I figured sooner or later it was going to happen," he says.

And he was right. The province has since committed $8.4-billion to the creation of four light rail transit lines, including the Eglinton Crosstown LRT, which will run from Black Creek Drive to Kennedy Station and is scheduled to be complete by 2020.

That is still years away, but the new transit is already having an impact on the neighbourhood. Yonge and Eglinton, which not so long ago was facing decline, is experiencing a massive growth spurt that is just in its infancy. Following in the footsteps of its southern siblings, it is going to get much taller, as 30-storey-plus condo buildings become more commonplace. And while density is being encouraged, the congestion that it can cause is likely to stir up more controversy around Yonge and Eg (or as Mr. Sonshine notes it's sometimes called, Young and Eligible) than it has in some parts of the core that are more accustomed to hustle and bustle.

But this is a train that's already out of the station. The average price per square foot for new condos in North Toronto has risen 18 per cent in the last three years, to $636, according to data from RealNet Canada Inc. (This works out to $508,000 for an 800-square-foot condo.) While there are more cranes and higher prices on downtown's west side, its growth rate doesn't touch that at Yonge and Eg.

A cycle is occurring: Yonge and Eg became more attractive to residents, which attracted condo developers, who – with the added amenity of the new LRT line – are attracting more residents.

As the growth feeds on itself, new office space is being built for companies that want to tap into the growing pool of nearby residents. And condo builders are looking for ways to appeal to the area's vast population of renters, another aspect of this shift that will change the flavour of the neighbourhood.

The impact of these changes will be substantial, say developers who are becoming increasingly active in the area. Five of them gathered recently at Grano, a restaurant on Yonge Street that's a local mainstay. Over coffees and cakes, they discussed the neighbourhood's transformation and why they are collectively betting billions of dollars on the area.

"We feel that this is the beginning for Yonge and Eglinton," says Todd Cowan, a partner at CD Capital, which has teamed up with Freed Developments for a big condo development push there.

"Yonge and Eglinton needed something to give it a kickstart, and we think that this commitment for the LRT line is what really created the impetus," Mr. Cowan says. "The thought of being able to get on the LRT ten years from now and be at the airport in half an hour or 40 minutes – that's a pretty amazing opportunity."

CD Capital and Freed Developments will be making a billion-dollar commitment to the neighbourhood over the next five to ten years. //"We currently have four towers plus some retail that we're doing as a first phase," he says. "We're big believers that, if you look back ten years from now, it's going to be one of those moments where if you're not in, you're going to say 'Geez, I wish I had invested there.' I'm not going to say it's the new Yorkville, but there are some pretty smart people that invested in Yorkville a long time ago and it was transformed, and I believe in a similar way this LRT line will turn Yonge and Eglinton into a place that is much more valuable five, ten years down the road." Mr. Cowan says.

Chris Sherriff-Scott, senior vice-president at Minto, remembers when the area was losing its mojo during the '90s. "It was actually in decline," he says. "When do people know that a neighbourhood is in decline? When they wake up one day and stores are shuttered. That's what was happening here gradually."

The decline transitioned into a period of stability that is now turning into a period of rapid growth.

"It was a sleeper for a very long time, but it was stable," says Maurice Wager of Shiplake Management Company, which has been active in the neighbourhood for decades. "Our buildings have consistently had very low vacancies since then. But now they're at all-time lows, and we're seeing all-time increases in rental rates."

The developers suggested that density is inevitable, and should be welcomed as a sign of a neighbourhood on the rise. "The fact is that the opportunities for newly built housing in this area, and in most parts of the 416, are a higher form of density," says Jim Ritchie, a senior vice-president at Tridel.

"We're a city that continues to grow in population, which is the single largest driver of our industry. It's just what Toronto's all about. It's the appropriate time in this location, and there's the big infrastructure that's coming in."

"We traditionally produce 25,000 homes in the Greater Toronto Area, and it used to be 17,000 or 18,000 of those were low-rise," says Jared Menkes, a development manager at Menkes. "Now it's switching to 17,000 to 18,000 high-rise, and 12,000 or 13,000 low-rise homes. And that low-rise number is still coming down because we're finding it harder and harder every day to find land to build those. So I think you will continue to see more development in downtown along infrastructure."

"For a traditional Canadian family, living in a small unit with a larger family is not familiar territory," says Mr. Cowan. "But, you look at the demographic changes in the city of Toronto, it's happening pretty rapidly, and a lot of people that are moving here are not accustomed to living in a larger house with a big yard, so I think there's also a shift in the culture of the people that are occupying these new homes."

In addition to attracting new residents to the neighbourhood, the condo developers who are pushing into Yonge and Eg are hoping to coax some of the renters in the many apartment buildings that have long dominated the area into buying units. "This community has the highest percentage of renters in the city," says Mr. Ritchie.

Of condo buyers, about one-third are single females, a much higher proportion than average, he adds. "And you also have a very high percentage… of the people in this community who are either single or couples that don't have kids."

Investors are also snapping up many of the new condo units. "Now the condo is sort of becoming the new de facto rental market," says Mr. Wager. And that's pushing apartment landlords to improve their offerings, even though the rental market is tight right now. Mr. Wager says that Shiplake's 1965 apartment building at 45 Dunfield Ave. is turning over units in two to three days when they become vacant. Nonetheless, "now we're starting to test the market by introducing what we feel is a suite that's more competitive with the newer stock," he adds. The company will keep apartments off the market for about a month after they're vacated and do extensive upgrades.

"A typical one-bedroom that would go for $1,450 a month is now going for $1,650 or $1,700 a month. We're starting to hit those condo rents in apartment buildings," Mr. Wager says.

The province legislates maximum rent increases for existing apartment tenants, one of the reasons why relatively few apartment buildings are being constructed. So it's somewhat surprising when Mr. Wager says that the momentum at Yonge and Eg is strong enough that "we're looking at doing new purpose-built rental buildings in the area."

The neighbourhood's offices are undergoing a revitalization in step with the housing stock, says Mr. Menkes. He points to firms like LinkedIn and Facebook, which have offices in the area. With a growing base of eager young workers moving in, many companies are taking notice. "The condominium buildings that we bring in are bringing in the workforce," says Mr. Ritchie.

Facebook is one of RioCan's tenants. They've expanded their offices twice since moving in about a year and a half ago.

Back at his office in the Yonge and Eglinton Centre, Mr. Sonshine is thinking of adding 250,000 square feet ofoffice space on top of the existing towers, as RioCan embarks on a $100-million revitalization and redevelopment program for the centre. "When we bought this building the office [space] was only about 80 per cent occupied. Today it's 100 per cent," he says. Four or five years ago, the company studied the idea of building more offices, but the costs of construction weren't economical. Now, rents are increasing and tenants are hungry for more space.

This, the developers say, is the new reality here. "There are a number of projects that are high-profile – they look large unto themselves," says Mr. Sherriff-Scott. "But if you look at them in terms of the community as a whole, there wasn't anything happening here for close to 25 years. Its time has come."