REPORT

Tackling the Shortage of Development Land
It Pays to Repurpose

By Paul Rayment

Today it is a run-down semi-detached home on a 7,800-square-foot residential infill site in a mature residential neighbourhood near Dundas and Ossington. Soon, it will be receiving a $2.3-million facelift that includes three additional residential units and a much bigger return on investment for the developer.

In this project on the Danforth in Toronto, the builder is renovating a main floor commercial unit with two floors of residential units above.

Scenarios like this are playing out in communities across the Greater Toronto Area and other major urban centres across Canada, as a shortage of development land forces investors and builders to turn to infill projects. But identifying opportunities isn’t as simple as decades ago, when you could build or renovate a single-family home and expect to turn a decent profit. Now it’s necessary to find ways to increase your coverage and that means replacing your builder’s hardhat with a developer’s mindset.
A builder excels at “bricks and mortar.” A developer envisions the end market, looking for creative ways to increase the land value, such as severing an existing residential lot to pave the way for more development, re-purposing an institutional building or, in some cases, building up.
Recognizing opportunity, however, can be a challenge. You don’t necessarily want to be first, but you do want to get in ahead of the rest when it comes to identifying profitable infill projects. Being first is the litmus test that says, “Is this going to work or not?” If you follow shortly behind the leader, when a neighbourhood is still on the cusp of major change, you may pay slightly more for the land, but will still earn a substantial return down the road.
Recent improvements along Ossington Avenue and the Liberty Village area of Toronto, for example, are making Beaconsfield Village a desirable area. One developer recently purchased three adjoining residential homes for just over $1.5 million, two of which hold a merged title. The intent is to re-sever the properties into four separate lots, renovate the existing semi-detached home and construct three freehold townhomes earning him a potential 100 percent plus return on investment.

Keep Your Eyes & Ears Open
It pays to keep your pulse on the city—or connect with a professional who does. If you learn that a new private school is planning to open in a neighbourhood surrounded by wartime bungalows, it might be prudent to purchase there before it opens and demand skyrockets. If an under-populated school is earmarked for sale, consider making an offer. Or perhaps there’s brownfield site in a prime location that other builders are ignoring.

The Victoria Common project in Kitchener, Ont., a 15-acre site that was originally home to a tannery dating back to the nineteenth century, will consist of 677 condo homes in five buildings along with 228 town homes.

One example of the latter is the Victoria Common project in Kitchener, Ont., a 15-acre site that was originally home to a tannery dating back to the nineteenth century. Backed by a $9 million project loan, the developer purchased the land, remediated the soil to meet residential environmental standards, and is now commencing construction of a major new community right in the downtown core that will consist of 677 condo homes in five buildings along with 228 town homes.
This project is also consistent with recent reports that suggest a growing number of young professionals—or echo boomers— are choosing to live in the downtown core over suburban neighbourhoods. They’re looking for smaller, more functional spaces close to public transit, retail and entertainment, creating great potential for developers. In several cases, there’s opportunity to build up, adding two or more floors to an existing commercial property in a prime location.
One developer has already completed three infill projects along Danforth Avenue in Toronto, and is in the process of getting permits in place for a fourth. What is now a two-storey mixed use commercial building featuring a second floor office space will transform into a renovated main floor commercial unit with two floors of residential units above, including a refinished basement to house storage lockers for eight new apartments.

This site on Leyton Avenue in Toronto was purchased as two parcels in 2002 for a total consideration of $338,000. The site was originally zoned as HWY commercial and the borrowers have had it rezoned for high density residential. They now have approval to build six freehold semi-detached homes and eight freehold town homes with a common element driveway. The homes are targeted for first-time home buyers ($330,000 to $370,000 price range), as an alternative to high-rise condominiums, with good access to public transit.

There is a growing trend for infill projects as land in major urban centres becomes scarcer; builders are turning their attention to infill projects in satellite communities. In Whitby, just less than an hour east of Toronto, a builder recently received $5.3 million total facility to finance a 20 lot residential infill subdivision. The project will consist of homes ranging in size from 1,800 to 2,100 sq. ft. and an average of $600,000 per home.
So while the cost of land for infill projects often comes at a premium, it can often be offset through intensification, as there continues to be a strong demand for downtown detached or semi-detached homes.
A successful infill project takes more than builder’s know-how. It requires the foresight to spot an existing site that is either derelict or has an inferior use, and elevate it to the next level. There’s risk involved, but with the right location and solid planning, infill projects can generate profits for discerning developers.

Paul Rayment is Vice-President of Foremost Financial Corporation and has been a BILD member since 1996. He has extensive experience in real estate development and project financing across the Greater Toronto Area.