TENANT REAL ESTATE REQUIREMENTS IN THE NEW ECONOMY

TORONTO BOARD OF TRADE. DECEMBER 4, 1996

When Brad Henderson asked me to join the panel, he was not aware that I am in fact an expert in the field of real estate. In the early 80’s, I was in Vancouver as President of Premier Cable Systems. Amongst my friends were Jack Poole of Daon, Nelson Skalbania and other authorities in the real estate field. They convinced me that land was the only sensible investment because as everyone said, “They are not making any more of it”. They soon had me investing in condos in Hawaii, MURBS, ‘development properties’ in Port Alberni and similar ventures. I ended up moving from a high-tech manager to being a slum landlord!

I may have missed the top of the market by a couple of days but certainly not more than that. The values dropped. The interest rates escalated to 20%. To use the classic phrase “I made a small fortune in real estate, the problem was, I started with a large fortune”.

All of this only says that one should pay attention to the true professionals and avoid speculating in areas one knows nothing about.

From a business perspective, Cantel did rely on the pros, with pro and con results.

On the pro side, we did move into space throughout our early career that reflected the image of the corporation, at least as we saw ourselves. The space tended to reflect a young, energetic and high-tech organization.

Our first space was in the new Cadillac Fairview Tower at 20 Queen Street. In a start-up situation, we were only about 20 people but the offices looked as though we were on our way to being a true competitor to Bell Canada.

As we expanded to several hundred people, we moved to 40 Eglinton Avenue East. We were able to sign our building which happened to be next to a rather conventional Bell Canada building.

However, our major move was when we expanded to over 1,000 people and moved to 10 York Mills. This was a location that had large floor plates, raised flooring throughout for the extensive LAN’s, as well as the wiring and air circulation. In general, it was a Smart Building. More importantly, the large floor plates allowed us to put together units that really benefited from working together.

The building had some major advantages. It had good access to the airport, excellent parking, a bus terminal right in the building and most important was directly on the subway with a station in the lower level.

However, when we moved in, in the late 80’s, our cost per square foot was very high. My problem with the building, however, was less the cost than the fact that I am basically a ‘core’ person. In terms of access to restaurants, shopping or other amenities for the staff, it was nowhere (I could walk to work but still did not enjoy the semi-suburban location.).

Our problem during all this period, however, is that we were growing so rapidly, we could out grow any site we moved into. By the mid-90’s, Cantel was over 2,500 people, although not all were at the York Mills location. We needed to consolidate once again, as we had offices in multi-locations around Metro.

Ted Rogers’ vision had always been one integrated location where all the groups who need to cross-fertilize ideas could be located. In fact, Ted wanted a ‘campus’.

The Confederation Life Building fit this concept and fit the cost.

We broke out of our past pattern of leasing and moving every four or five years and bought the building for approximately $32,000,000.

In fact, we bought three buildings. The main location was at One Mount Pleasant (referred to as OMP) and two subsidiary buildings at 321 Bloor Street East and 100 Huntley Street. Although I have heard varying figures, the cost to build the complex was somewhere in excess of $130,000,000.

The pro’s of this move were:

• It is a superb physical facility (although I tend to think of it as Moscow Modern). Before Confederation Life could even fully move in, they had developed a fitness centre for example which had state-of-the-art equipment that was left unpacked.

• It provided excellent meeting space and office facilities for the 1,800 people we are moving into the location.

• It was a bargain. It even includes a portion of an art collection.

The con’s of the location are that its access is not as good as 10 York Mills in terms of the airport and subway. However, it is within easy walking distance of Yonge & Bloor with the amenities in the area.

We also need to upgrade 321 Bloor Street East to make it a ‘Class A’ building. It is possible we may demolish 100 Huntley Street for additional parking.

The implications of a move like this for the GTA are that there are some great bargains still available. While tenants have taken advantage of the current low leasing rates, nothing beats buying a quality building in a good location at bargain rates. This may well be a trend over the next several years.

There are not many Campus-style buildings available in the area. Had we chosen to remain in a suburban location, we would have had to build. As it was, we obtained 380,000 sq. ft. in OMP and another 350,000 sq. ft. in the Bloor Street building for $32,000,000. This is a bargain on a per square foot basis. To add to the benefit our tenant improvement costs will likely only be about $3.00 per sq.ft.

Ultimately, we will put together parts of Rogers’ Cablesystems and Rogers’ Network Services, as these groups will be working increasingly closely with the Cantel group. In total, there could be about 3,500 people working in the two buildings.

It is interesting that as both Cantel and Cable were previously located in suburban areas, the access was largely by automobile. We predict this will change dramatically as we tap a labour pool with subway access.

There was and still is one major drawback to the move and that is the taxes. Our total taxes will run $2.9 million dollars per year, even at the best rates we could negotiate with the City. For example, it would appear that the square foot tax rates are about $8.00 at 321 Bloor versus perhaps $3.00 in Mississauga.

However, the advantages still outweighed this disadvantage.

It is interesting to note that this is one of the first major recent moves of a large corporation from the suburbs into the city. We have received outstanding co-operation from the Mayor and the staff and this certainly was one of the factors leading to the move.

WHY STAY IN THE GTA?

For a communications company, the GTA is one of the best places in the world to locate. The Globe & Mail in its Report on Business in 1995 called Toronto “the smartest city in Canada”.

From a communications standpoint, it is centrally located in North America, has extensive fibre networks and even its over the air transmissions are somewhat less cluttered than those of New York or Los Angeles.

It has the CN Tower which Cantel used for microwave hops to a wide area around Southern Ontario. We also located one of switches at the base of the CN Tower.

One of the reasons why Canada has a first rate post-production facility in Toronto is the availability of these high-speed links running along King Street from Parliament to Dufferin.

SMART Toronto, an organization to promote the GTA as a world-class high-tech centre, is working to co-ordinate the various fibre optic facilities around the city to ensure that all buildings and locations requiring access to high-speed nets will have the facilities they need.

Beyond the Smart City aspect, however, is everything that Fortune pointed out in its survey, in its November 11, 1996 issue – that Toronto is the best city outside the United States in which to live and to work. One only needs to travel as extensively as I do, to realize that this is no idle comment.

Furthermore, a third of the population of Canada and even a higher fraction of the business activity is within about a 300 kilometre radius of downtown Toronto.

In a word, we have a wonderful package to sell. The challenge is that while we have a great product, we need a great promotion.

This is what the Greater Toronto Marketing Alliance is all about. This is a co-operative effort amongst the Greater Toronto Economic Development Partnership (The Municipal Economic Development Officers and the Provincial Office of the GTA) and the GTA Boards of Trade and Chambers of Commerce. This has received the strong support of the GTA municipalities through the Council of Mayors. The purpose of the GTMA is to promote the area nationally and internationally as a place to maintain or establish businesses. The organization will be jointly financed by the private and public sector starting in 1997.

Just as Cantel saw Toronto as the logical place to establish its business office, other companies will do the same provided we do a good job of promoting the area.

The impact of the GTMA on real estate sales and development in the area should be immense. We will of course be looking for support of this project from those in the real estate industry.

It is a smart idea to be in a Smart City.

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