Nobu Ignores Toronto Housing Bubble Drama With New Condo ProjectBy
De Niro-backed hotel speaks to Toronto’s ‘world class’ status
Policy makers to announce measures to tame city’s price surge
Nobu isn’t worried about a Toronto housing bubble.
The company best known for high-end sushi and celebrity cachet is poised to enter the frothy residential real estate business in Canada’s largest city just as a growing chorus of economists warn that soaring home prices aren’t sustainable and a crash looms. Policy makers are expected to announce new measures Thursday to cool the market, including a tax on non-resident speculators.
Even as the bubble debate rages, Nobu’s decision to make its condominium debut in Toronto, as opposed to cities such as New York, London or Tokyo where it already has a stronghold with restaurants, wasn’t difficult, said Trevor Horwell, chief executive officer of Nobu Hospitality LLC.
“Toronto is a very buoyant market,” Horwell said in an interview Tuesday. The condos will pay for themselves and do “very, very well.”
Nobu’s arrival with about 700 units in Toronto’s Entertainment District is further evidence for housing bulls that a red-hot market is the price to pay for living in a rapidly evolving city that’s attracting interest from around the globe. It’s the fourth-largest metropolitan area in North America, the second-biggest financial hub, and features burgeoning high-tech, education and health-care industries that are driving growth and job gains.
For Ara Mamourian, owner of Toronto real estate brokerage Spring Realty Inc., it’s the “new normal,” for the city that rapper Drake has always called home. “Toronto always thought of itself as a world-class city but never quite was, but I think now we are seeing what that really means in terms of real estate,” he said.
Plans for a restaurant, hotel and residences in downtown Toronto mark Nobu’s first push into Canada, about 23 years after actor Robert De Niro persuaded chef Nobuyuki Matsuhisa to open a Japanese eatery in Manhattan’s Tribeca neighborhood. Today, the closely held company is in about 18 countries across five continents.
Nobu will be the latest hotel and condo complex in Toronto, following new properties in recent years including the Ritz-Carlton, Trump International Hotel & Tower, Shangri-La and Toronto-based Four Seasons. Nobu is partnering with Toronto-based developer Madison Group and unit sales are set to begin in June. Construction on the complex will start next year, according to Elliott Taube, president of International Home Marketing Group, the firm overseeing the project.
Even with the record price gains, Toronto’s housing prices are affordable relative to other global cities.
A condo tower in Toronto “makes sense,” said Stefane Marion, National Bank of Canada chief economist and strategist. “Prices have increased dramatically in recent years, but from a international standpoint they don’t seem to be out of whack.”
The price per square foot to purchase an apartment in the center of Toronto is C$651.33 ($486.10) compared with $1,122.79 in San Francisco and $2,368.46 in Hong Kong, according to Numbeo, an online database of user-contributed city and country statistics. In Toronto, mortgages as a percentage of income is about 58 percent versus 75 percent in San Francisco and 236 percent in Hong Kong.
On another measure, the price-to-income ratio for a 90-square-meter (970-square-foot) condo in Toronto’s downtown was 8.4, according to National Bank Financial Markets, citing Numbeo. That compares with 12.1 for San Francisco, 16.4 for New York and 30.9 for London.
Well-educated immigrants are contributing to the housing boom. Canada last year had the fastest population growth among major world economies, fueled by migration, according to Marion. Toronto, the country’s economic and cultural center, is attracting most of the new arrivals, he said.
“Are we in a bubble? I don’t believe so. We are in an active growing market,” said Dianne Usher, a senior vice president at Johnston & Daniel, a division of Royal LePage, one of Canada’s biggest provider of real estate services.
“Toronto is growing up,” she said, citing highly ranked universities and health care. “We are continually rated as a great place to live, so people are migrating here. Our real estate prices haven’t caught up yet. We are cheap, cheap, cheap compared to many other world-class cities.”
The global real estate limelight doesn’t come naturally.
“Canadians are used to being ignored,” said James Thorne, portfolio manager and chief capital market strategist at Caldwell Investment Management in Toronto. “We are not comfortable with the attention the hot housing market brings to us globally, but the attention we are receiving is not going away.”
Describing the Toronto region’s housing market as a “bubble” conjures up unwarranted comparisons to the pre-financial crisis market in the U.S., according to Thorne.
The value of U.S. homes fell by a third from 2006 to 2009, as tracked by the S&P/Case-Shiller index. Prices declined 56 percent in Las Vegas and 49 percent in Miami.
“This is nowhere near the subprime crisis in the U.S.,” he said. “Show me the no-documentation loans. Show me a financial system leveraged over 20 to 1, with no oversight. Show me the official sector not implementing policies to slow the price increase and excessive risk taking. Yes, we have had price increases that have been substantial, but that’s it.”
World class or not, there is a growing concern that Toronto housing is defying economic fundamentals and being driven more by speculation.
Home prices in the region climbed 6.2 percent in March, the biggest one-month gain on record, according to a benchmark price index from the Canadian Real Estate Association, and are up almost 30 percent over the past 12 months.
Canadian officials across all three levels of government vowed this week to be vigilant on housing, weighing steps to curb speculation. Options under consideration by the Ontario government include taxes on speculators and vacant homes. The province is expected to announce new measures Thursday.
Policy makers are concerned the soaring prices are making the city unaffordable, and threaten the economy as consumers spend more money on their mortgages. Price gains in Vancouver and Toronto have far outpaced San Francisco and New York in recent years.
What’s more, the jump in Toronto-area prices is spilling over into nearby towns, which don’t all have the global appeal of Toronto. Prices in the Kitchener-Waterloo area soared 28 percent last month from the prior year; and in the Niagara region, about 120 kilometers (75 miles) west of Toronto, they jumped 30 percent, according to the Canadian Real Estate Association.
David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. who forecast the U.S. housing crash when he worked for Merrill Lynch & Co. in New York, has called the market a “bubble of historic proportions.”
“If it walks like a duck, talks like a duck, it’s a duck,” Rosenberg said.
Canadians should brace for a potential correction, Bank of Canada Governor Stephen Poloz warned last week. Any price that’s rising at a rate of 30 percent or more “has divorced itself from any fundamentals that we can identify,” the governor said. “It puts it into what I would call an unsustainable zone.”
Nobu’s Horwell isn’t concerned. The U.S. financial crisis had a “minuscule” effect on business and the restaurant chain came back stronger than before after just one year, he said.
If there is a problem down the road in Toronto’s residential market, “I don’t
think it’s going to impact us that much,” Horwell said.
A correction in Toronto home prices would “actually be a good thing,” economist Rosenberg said.
“Would it have ripple effects throughout the economy? Probably not,” he said. “I wouldn’t say Toronto is quite yet London or New York or Paris, but Toronto is emerging as a first-class city.”