RioCan CEO Plots 2017 Toronto Projects as Home Demand SpikesBy
CEO Sonshine eyeing 50+ sites across Canada for redevelopment
Each project expected to cost at least C$150 million
The head of Canada’s largest real estate investment trust is adding more projects to his redevelopment pipeline amid unprecedented heat in Toronto’s housing market.
Ed Sonshine, the 70-year-old chief executive officer of RioCan REIT, is in the planning stages for several large sites this year that may push the company beyond an original goal of building 10,000 residential units in the next decade. The Toronto-based company has a portfolio of about 300 malls across the country, and is seeking to redevelop stores and add housing to at least 50 of them.
“The real estate market is so hot right now, there’s no way it’s going to stay like this forever," Sonshine said at Bloomberg’s Toronto office Thursday. “But you can’t do too many projects or you just won’t have the cash, and you don’t want your leverage to go up. We just got our credit rating upgraded we don’t want it to go right down again."
The company’s funds from operations are a “guardrail" and RioCan will stay about 40 percent leveraged, Sonshine said.
Sonshine has been adding apartments to his company’s retail locations, most anchored by big-box stores such as Loblaws and Wal-Mart, as demand for housing skyrockets in the Canada’s largest cities. The REIT is focused on building rental apartments and aims to partner with developers on any condominiums.
RioCan, with a market value of about C$8.3 billion ($6.2 billion), has returned 19 percent in the past 12 months including reinvested units.
RioCan is currently redeveloping a C$1.4 billion, 7.6-acre site in Toronto’s west end with Allied Properties REIT and Diamond Corp., to become 3.1 million square feet of mixed-use space. Also under construction in the city are two towers of at least 36 stories at the intersection of Yonge and Eglinton streets in midtown, and two buildings comprising about 420 units in the same neighborhood, replacing a parking lot and shopping center.
RioCan also is seeking approval to build on 54 acres in the suburbs. Shoppers World, a site in Brampton located near a large planned transit area, is currently a “broken down, old mall built in the early ’70s that we’ve been trying to figure out what to do with," Sonshine said.
RioCan is working with the city to develop a master plan, he said, which will include 300,000 square feet of retail -- less than half the current amount -- and about 1,500 residential units, the majority rental. Those would be on top of the 10,000 units originally forecast. These projects would typically cost at least C$150 million.
Sonshine is betting on increased demand for rental properties as buyers are priced out of the housing market in Toronto, with about half of the company’s development projects in Canada’s largest city, and malls are facing pressure from online sales.
Average detached home prices surged 20 percent to C$1.25 million in 2016 from the prior year, and sales hit a record, according to the local real estate board. Aside from Toronto, the developer also is targeting Vancouver and Ottawa, building a rental tower across the street from CSIS, Canada’s spy agency.
Sonshine also said that President Donald Trump may be a good thing for Canada’s real estate market, given the conversations he’s had with some brokers working with U.S. investors of commercial properties and land.
“They’re a little bit afraid of what’s going to happen in the United States -- not in terms of the value of their investment, but whether they’ll be allowed to come visit," he said. “In some funny ways, a Trump presidency might be not bad."