THE CONDITIONS FOR CAPITAL INVESTMENT IN

THE REAL ESTATE SECTOR:

THE CASE OF OFFICE DEVELOPMENT IN TORONTO

lgal Chamey

A thesis subrnitted in conformity with the requirements for the degree of Doctor of Philosophy Graduate Department of Geography

University of Toronto

O Copyright by lgal Chamey 2000

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A b s t r a c t

THE CONDITIONS FOR CAPITAL INVESTMENT IN

THE REAL ESTATE SECTOR:

THE CASE OF OFFICE DEVELOPMENT IN TORONTO

Doctor of Philosophy 2000

lgal Chamey

Graduate Department of Geography University of Toronto

This study presens an examination of office development in Canada and speclically in the Toronto

metropolitan region in the post-WWII era. The major purpose of this inquiiy is to document and analyze

the spatial patterns of office development produced by real estate devetopers in conjunction with

financial agents. The changing real estate sector in Canada during the last f i i yean provides the

backdrop for this research.

The major argument put forward emphasizes spatial limits that shape the geographic scope of office

development. The heterogeneity of space prompts the production and maintenance of distinctive

surfaces over which office development takes place. The idea of capital switching between circuits of

accumulation is expanded to include switching practices within the real estate sector. This notion is

introduced throug h the concept of 'three dimensions of capital switching'.

In the office development process, one of the major agents is the real estate developer. Developers

perforrn two basic spatial tasks: they 'lock' capital into specific places by engaging in the development

of office buildings, and they either continue to operate in customary locations or switch their operational

preferences between different places. W i i respect to spatial fields of operations, a distinction between

two spatial scales is made.

Uneven conditions experienced by different cities are a major stimulus for variable spatial practices

experienced by developers. Wi i in the Canadian urban system, large developers prefer to invest in

specific top-tier cities, particubrly Toronto and Calgary and to a lesser extent in Montreal and

Vancouver. The preferences of developers indicate that office development is spatially selective and

based on specific regional and local conditions.

At the intra-metropolitan level, uneven conditions resut in a distinct spatial division of labour among the

developers of office buildings. Office development in the Toronto area illustrates the ability of

developers to pursue development in paiücular settings. Their practices result from compatibility with

particular environments and with specific societal arrangements. This in tum produces and reproduces

territories that are conceptualized as office development districts.

iii

Acknowledgements

In sober-mined retrospect, when I arrived in Toronto in August 1996,l did not fully realize the scale and

scope of punuing the Ph.D. quest. In punuing this enonous task, I was very fortunate to have

tremendous help and constant caring and nourishing without which t could not have managed. I was

fortunate to have an outstanding supewisor and a very supportive committee that enabled me to

complete this project in four-years. I was also able to take full advantage of the excellent living

environrnent and educational facilities in the City of Toronto, and the resources of the University of

Toronto.

I am deeply grateful to my Ph.D. supervisor. Professor Gunter Gad, for his support.

professional guidance, and his generous nature. His caring and mindful attendance were essential for

the completion of this project. Gunter has been professional anchor and friend throughout my Ph.0.

program and I feel fortunate to have been able to work with him.

I would also like to thank my PhD. committee memben, Professor Lany Boume, Professor

Robert Lewis and Professor Susan Ruddick, for their interest, suggestims, and constructive

cornments. Their input and support are deeply appreciated. Professor Ted Relph provided direction in

the earlier stages on this dissedation for which I am grateful. I owe particular thanks to Professor Anne

Haila of the University of Helsinki for acting as extemal examiner, and for her very strong interest in my

research. Also, I have thanks to Professor Pierre Filion of the University of Waterloo for agreeing to be

on the final examination committee.

I would like to thank the Department of Geography at the University of Toronto that hosted me

for four years and provided me with scholarships and teaching opportunities. Also, I am thankful for the

staff that rnake this department such a pleasant place to study in. In particular, I am grateful to

Marianne Ishibashi and Donna Jeynes for their willingness to help and their good spirit.

I would like to thank the people who agreed to be interviewed for this research and shared with

me their thoughts and ideas, and to Mark Knowles and Dean April of Royal LePage Commercial Inc.

for their assistance in the process of data collection.

Finally, I would like to thank Professor Amiram Gonen of the Department of Geography at the

Hebrew University of Jerusalem who encouraged me to widen my horizons and pursue a Ph.D.

program abroad, and for his ongoing interest in the progress of my research. Professor Bryan Massam

of York University provided me with moral support in rny first two years in Toronto. Most of all, I would

like to thank my family for al1 of the support they have provided over the years.

Table of Contents

Abst ract

Acknowledgements

Table of Contents

List of Tables

List of Figures

INTRODUCTION

THEORlZlNG OFFICE DEVELOPMENT

Principal Approaches 1 .l. 1 Neo-classical approaches 1 .1.2 Political economy approaches 1 .1.3 Institutional approaches

Components of the Real Estate Development Process 1.2.1 Building cycles and their spatial aspects 1 -2.2 Financial institutions and real estate development 1 -2.3 The state and real estate development 1.2.4 Real estate developers

Steps Toward a Theory of Office Development 1 -3.1 The intrinsic dynamic of real estate capital 1.3.2 The 'three dimensions of capital switching' 1.3.3 Reciprocal relations: Real estate and other capitals

A Provisional Framework

xiii

2 RESEARCHING OFFICE DEVELOPMENT IN TORONTO: CONTEXT, APPROACH, METHODS, AND DATA

Context: The Conditions for Office Development in Toronto 2.1 .1 Population and employment growth 2.1.2 Municipal organization 2.1.3 The planning system 2.1.4 Taxation 2.1.5 General development issues 2.1.6 Office users in the Census Metropolitan Area 2.1.7 The scope for office development

The Research Process and the Use of Realist Method

Data of lnterest and Data Collection 2.3.1 Extensive data 2.3.2 Intensive research

THE CHANGING CANADIAN REAL ESTATE SECTOR

The Trajectory of Commercial Real Estate Companies in Canada 3.1 -1 Office development in the first half of the twentieth

century 3.1.2 The formative era of modem developers:

Entrepreneurial skills and 'extemal' capital 3.1.3 The golden era of office development: Expansion and

the establishment of real estate powerhouses 3.1.4 The institutionalization of the real estate sector and

the emergence of new entrepreneurs

Canadian-Based Real Estate Companies and Office Development in the United States

Office Development and Foreign lnveston in Canada

ldentifying Primary Office Developers and Owners in the Toronto Area

Unpacking Real Estate Developers

4 FlNANClNG OFFICE DEVELOPMENT AND THE ROLE OF FIN ANCIAL INSTlTUllONS 99

The Configuration of the Canadian Financial System and the Financial Arrangements in the Real Estate Sector 101

Sources of Financing Office Development: The Developer's Perspective 1 06 4.2.1 Olympia & York: Social networks, ingenuity and the

provision of financing 1 08 4.2.2 Corporate sire and real estate financing 110

Financial lnstitutions as Investors in Office Buildings and as Developers 112 4.3.1 Banks and office development 114 4.3.2 Life insurance companies and office development 118

The Spatial Practices of Office Development and Ownership by Financial Institutions 122 4.4.1 Banks 123 4.4.2 Life insurance companies 126

The Spatial Limitations of Real Estate Capital 130

Financing and Financial Institutions: Concluding Remarks 1 33

THE THREE DIMENSIONS OF CAPITAL SWITCHING: LARGE CANADIAN REAL ESTATE COMPANIES AT THE NATIONAL SCALE 136

Switching Between Modes of Operation 138

Switching Between Property Types 140

Switching Between Locations at the National Scale 144 5.3.1 The geography of office building cycles in Canada 145 5.3.2 Office building cycles in Toronto and Calgary 150

Three Dimensions of Capital Switching and Building Cycles: Two Case Studies 5.4.1 The Trizec Corporation 5.4.2 Cadillac Fairview Corporation

Capital Switching and Real Estate Companies

FROM KING AND BAY TO MEADOWVALE: TORONTO'S OFFICE BUILDINGS AND OFFICE D

Preliminaries: Office Building lnventory and Spatial Frame of Reference

Toronto's Office Stock: A Synopsis

Office Districts in Toronto 6.3.1 The Financial District 6.3.2 Downtown and Midtown 6.3.3 Suburban Downtowns 6.3.4 Office Parks

Sequential Cycles of lnvestment within the Metropolitan Realm

The Changing Character of Toronto's Office Stock

THE SPATIAL PRACTICES OF OFFICE DEVELOPMENT COMPANIES AND OFFICE DEVELOPMENT DISTRICTS IN TORONTO

Spatial Selectivity among Real Estate Companies in Toronto 7.1 .1 Cadillac Fairview Corporation 7.1.2 lnducon Development Corporation

Office Development Districts

7.3 Area-Specific Case Studies of Office Development Districts 205 7.3.1 City of Toronto 206 7.3.2 North York 21 3 7.3.3 Mississauga 217

7.4 Uneven Surfaces of Office Development 225

CONCLUSIONS: SPATIAL F1X AND SPATIAL SWlf CHlNG OF REAL ESTATE CAPITAL

List of References

List of Interviews

Table

Type of data available on office building permits and office floor-space

List of interviews

Major themes and questions in interviews

The weight of the real estate sector in the Canadian econorny, selected years, 1 966-96

The largest (publicly held) Canadian-based owners of real estate assets, selected years, 1971 -99

A profile of the largest Canadian-based reai estate companies in their initial phases

The largest real estate investment trusts in Canada, 1999

Office portfolios of Canadian-based real estate companies in Canada and the U.S., selected yean, 1976-99

The largest owners of office space in the Toronto area, selected years, 1971 -99

Debt-to-equity ratio, al1 industries and real estate, selected years, 1971 -96

Banks involvement in the development and ownership of their head offices in Toronto

lnvestment of Canadian life insurance companies in real estate and mortgages, selected years, 1950-98

Bank of Nova Scotia and office developrnent joint ventures

ClBC Development Corporation and Royal Bank's owned office portfolio, 1 998, 1 999

Major developments by Canada's largest life insurance companies (for income-producing purposes), late 1970s to early 1990s

Office buildings developed by Manulife Financial for income-producing purposes, 1960s ta 1980s

x

Paae

60

66

67

71

73

76

83

85

94

1 O?

115

119

1 24

1 25

128

129

Table

Spatial distribution of Manulife Financial real estate portfolio, selected years, 1960-99

Major switching practices of selected large real estate companies (by property type)

The largest owners of office space by the location of their Canadian office portfolio, selected years, 1975-99

The growth of office space in Toronto and Calgary, selected years, 1978-99

The Canadian office portfolio of Trizec, selected years, 1968-99

The Canadian office portfolio of Cadillac Fairview, selected years, 1 968-99

A typology of office districts in the Toronto CMA

The growth of office space inventory in the Toronto CMA. selected years, 1954-99

Additions of new office space in the Toronto CMA, selected yean, 1954-99

Average size of newly constructed office buildings in the Toronto CMA, 1 954-99

Average densities of office buildings in Metropolitan Toronto, 1991

Physical characteristics of office buildings in selected districts in the Toronto CMA, 1999 179

The inventory of office space in Toronto's Financial District, selected yean, 1961 -99 181

The inventory of office space in the Suburban Downtowns, selected years, 1976-99 1 84

The inventory of office space in Office Parks in the Toronto CMA, selected years, 1 971 -99 186

Additions of new office space along the Don Valley corridor, selected years, 1 961 -99 190

Paae

133

Table

7.1 The operational spaces of selected mal estate companies in the Toronto CMA, selected years 1 97 1 -99 (office portfolios) 196

7.2 The office portfolio of Cadillac Fairview in the Toronto CMA, selected years, 1975-99 200

7.3 Inducon's office portfolio in Office Parks in the Toronto CMA, 1 982 and 1991 202

7.4 Top developers and owners of office space built in the Financial District after 1960 209

7.5 Top developers of office space in the Mississauga City Centre, 1 970-92

List of Figures

Paae

Downtown and north-south corridor office devetopers in the Toronto CMA

Suburban office developers in the Toronto CMA

Toronto Census Metropolitan Area

Connections between financial capital and real estate developers

The three dimensions of capital switching in Canada

Value of office building pennits in Canada, 1961-99

Value of office building perrnits in Ontario and Quebec, 1961 -99

Value of office building permits in British Columbia and Alberta, 1 961 -99

Net New supply of office space in Toronto and Calgary. 1969-99

Major office concentrations in the Toronto Census Metropolitan Area

By the end of the twentieth century, office buildings had become the most prominent structures in many

of the large rnetropolitan areas of the world. Office buildings are part of the iconography of the

metropolis: the Empire State and Chrysler Buildings in New York, the Sean Tower in Chicago, the

Transarnerica Building in S2n Francisco, or the Fint Canadian Place and the Toronto-Dominion Centre

in Toronto. A Toronto-based development company, Olympia 8 York, and its office mega-project,

Canary Wharf in London, England, provided the greatest spectacle of real estate promotion and

subsequent collapse in the M decade of the twentieth century. However, skyscrapen and mega-

projects like Canaiy Wharf are high profile elernents that mask a vast amount of less conspicuous and

rarely publicized office developrnent.

Office development has been uneven in space and time. There have been several cycles of

office development in the twentieth century, bu? in ternis of magnitude, the boom of the 1980s was

unprecedented. In some cities, such as Houston, Texas, more office floor-space was built in this one

decade than in the preceding f i yean. Although the 1980s boom drew a lot of attention to global

cities (Sassen, 1991, 1994) and to office development in cities like London (e.g., Diarnond, 1991;

Zukin, 1 992; Fainstein, 1994; Pryke, 1994a) and New York (Zukin, 1992; Fainstein, 1994), there have

been many other cities where office development was prominent and attracted the attention of

researchers. For instance, the booms in office development in Houston (Feagin, 1987, 1988), Dublin

(MacLaran, 1 993, 1996), Nottingham (Btyson, 1990, 1997), Melbourne (Beny, 1994), or Auckland

(Moricz and Muiphy, 1997) and the research they generated can be rnentioned. However, across

regions and urban systems and within large cities, office devebpment has been uneven.

In order to understand uneven temporal and spatial development of the urban fabric in general,

and office development in paiticular, many researchen have drawn on Harvey's (1982,1985) theory of

capital switching between pnmary and secondary circuits of capital accumulation, and his notion of

capital switching between places (Beauregard, 1991, 1994; Haila, 1991 ; Pryke, 1994a, 1994b).

However, the notion of time scale under investigation is essential in the analysis of the built

environment. Harvey's research on capital accumulation focused on long-terni history; however, other

scholars such as Feagin (1 987) and Beauregard (1 991, 1994) were interested in shorter periods and

as a result conclusions about switching practices are different from these proposed by Harvey.

Harvey's conceptualizations have also implicated finance capital in the process of the

production of the urban fabric, and as suggested by Warf (1994, p. 325) 'Yinance capital is not some

passive actor in the construction of hndscapes, but an adive participant wilh a bgic of its ownn. Some

limited research has punued this avenue as far as offce development is concemed (Feagin, 1987).

Othen have not oniy considered the role of finance capital as an intennediaiy, but also as a direct

participant in office development as financial institutions becarne developers and owners of office

buildings (Des Rosiers, 1 984; MacLaran, 1 986; Lindahl, 1 997). It has also been suggested that the role

of financial institutions as lenden-usen and as ownen-uses might converge, and these institutions

force their locational preferences on office development patterns (Piyke. 1994a. 1994b; LUieri et al..

2000). Another strand of research has argued îhat real estate devebpers have ernerged as large-scale

companies. and become multinational corporations with far-flung projects (Beauregard. 1989; Feagin

and Parker, 1990; Sudjic, 1992; Knox, 1993, Logan, 1993; Olds, 1995; Beauregard and Haila, 1997).

However, the literature on the uneven development of the urban fabric is not as straightforward as this

paragraph may indicate.

The notion advocated by Zukin (1992) and Knox (1993) that real estate developen have global

reach that enables them to engage in development across regions with-in one country and beyond, and

that real estate capital has limitless scope is somewhat extrente and should be questioned. Urban

space is neither flat nor featureless. It has a highly articulated and changeable surface (Harvey, 2000).

Institutions and sets of individuals are grounded in local settings. They respond to these specific

settings and reproduce them, thereby contributing to the pennanently uneven structure of urban space.

Indeed. several authon have argued that office development takes place in very specific historic and

geographic settings as a result of the juxtaposition of specific requirements (Pryke, 1991, 1994a,

1 994b; Beauregard, 1 993; Ball, 1994; Leitner, 1994).

Office developrnent in Canada

The configuration of the real estate development sector in Canada is an outcome of two parallel

processes. At the macro scale, historical shifts in strategies of accumulation have resuhed in a number

of changes. Entrepreneurial developen were the prominent agents of change at the fint phase of the

development of the Canadian commercial real estate sector; largexale development companies

shaped office development in a later stage, and rnost recently, financial institutions became the most

important agents in the real estate sector. In the short nin and in ternis of ongoing process, real estate

companies aiming to grow or to stay afloat have employed capital and spatial switching practices.

There have been several office development cycles at the national level in the last f i i years,

and major urban areas were affected differently by them. Office developen have taken advantage of

these cycles and have produced an extraordinary amount of office space in Canada's largest cities.

Two cities stand out in tems of office development booms: Calgary in the late 1970s, and Toronto in

the 1980s. Toronto is Canada's largest urban area mth by far the largest office floor-space inventoiy

(145 million square feet in 1999 or 40 percent of the national office stock), and Calgary has the third

largest office stock (42 million square feet in 1999). Toronto experienced consistent rates of growth in

office space Mi le Calgary had abrupt cycles of office development. To put the 1980s boom in

perspective: in each post-WWII decade, office fbor-space doubled in Toronto. Between 1981 and

1991, this doubling meant an increase from about 74 to 142 million square feet of floor-space, which is

almost the inventory of Montreal (the city with the second hrgest o f tm inventory, 80 million square feet

in 1999) and about the combined 1999 inventoiy of office space in Vancouver, Edmonton, Halifax and

Winnipeg (68 million square feet). On the other hand. Calgary's history shows an impressive boom in a

very short penod: office space more #an tripled between 1978 and 1982 (from 8 to 28 million square

feet).

Office development within the Toronto metropolitan region has been highly uneven. The towers

of the socalled Financial District are a relatively minor part of a highly articulated landsape of office

buildings and office districts. These districts include several distinct inner city areas, suburban

downtowns, and a variety of office paiks. These districts are diierentiated by the age and size of office

buildings, by development densities, and also by the physical, economic, and social fabric in which

office buildings are embedded. Canadian and especially Toronto-based companies developed almost

al1 of Toronto's office space.

Within the Toronto region, most real estate companies have very specific fields of operation.

Figures 1 and 2 show the different operational spaces of selected development companies in the

Toronto Census Metropolitan Area (CMA, Statistics Canada definition of a metropolitan region).

Cadillac Fairview and Olympia 8 York, two of the largest real estate companies in Canada. operated

mainly in downtown Toronto. Marathon and Bramalea, smaller real estate companies, operated along

Toronto's traditional North-South high-income sector. Other developers, such as Inducon, Menkes,

Orlando, and Shipp, operated only in selected suburban municipalities. The broad picture of office

development in Canada suggests that office development is not only uneven, but also carried out by

agents with highly focused geographic preferences. Developen operate in highly specific locations.

Knowledge of particular places and local opportunities encourage developers to be very selective.

The major issue to be addressed in this study is the relationship between the conditions of

developrnent. and the response to these conditions by specific types of agents who produce the built

environment, especially office buildings and office districts.

Office development in the cities of the Canadian uban system, particulaily within the Toronto Census

Metropolitan Area between 1950 and 2000, is the arena to be investigated. The following paragraphs

outline briefly the major thesis, the approach, the specific research methods used, and the types of

data collected. A final paragraph outlines the organizaton of the thesis.

Thesis

The core of the thesis maintains that office development is spatially uneven, because capital requires

spatial unevenness to create oppominiaes for future aaumulation, and because the practice of

development faces important spatial barriers. F i e components of the thesis contribute to distinct sub-

arguments. Together, they describe the pradice of office development and support the core thesis.

1. Capital switching between primary and secondary circuits of capital accumulation is difficuk to track.

and it may be a phenomenon that is l e u important than some authois suggest. Instead, my focus is on

the real estate sector which has an 'intnnsic dynamic' (Haila. 1991). This intnnsic dynarnic can be

conceptualized as the Yhree dimensions of capital switching' within the real estate sector. This

switching can occur between modes of operation, property types, and locations.

2. The built environment consists of physically discemible structures and the parcels of land they stand

on. These real estate properties are by definition immobile and represent capital investment in concrete

and fixed assets. However, capital is also elusive and nomadic; the 'globalkation hypothesis' with

regard to real estate development relies on this guality (Berry and Huxley, 1992; Olds, 1995). The

development, and the ownenhip, of real estate properties has become increasingly 'delocalized' and

may be detennined by forces beyond the city's boundaries (Savitch, 1995; Beauregard and Haila,

1997; Baum and Liiieri, 1998, 1999). There seems to bel therefore, a paradox or an inherent

contradiction between immobile properties and mobile capital. This contradiction can be reconciled by

scrutinizing the reciprocal relationship between the abstract nature of capital and its concrete

manifestation. On the abstract level, capital is intangible, a restless element of the global financial

markets. Nevertheless, capital invested in real estate assets has to be fixed in definite places, at least

for a limited period of time, thus fumishing capital concemed with office development with a spatial

specificity.

3. Real estate investment, and especially real estate development. is fundamentally a local business.

This 'local dependence' (Cox and Mair, 1988. 1989) means that real estate development has to build

on local knowledge and local conditions. Unifom and perfect knowledge across space is unlikely to be

attained, thus, developen have to decide where they want to put their development efforts. To be well

inforrned and obtain valuable information, developers need to be well connected in their operational

environment. Developers with spatially diverse interests have to familiame thernsehres in the local

arenas in which they invest. This also implies that they negotiate with a variety of local interests,

including specific local govemrnents.

4. Real estate development, including office development, is cyclical. In the case of office development,

cycles are not identical across regions or across the Canadian urban system. Spatial differences in

building cycles encourage soma developen to take advantage of opportunities that are created by

uneven conditions.

5. Finance capital is essential for real estate development, and especially for office developrnent. The

relatively large amounts of rnoney needed, the longevity of office buildings, and the gradua1 strearn of

revenues require that office developen bonow heavily. While flows of money may be flexible in theory,

they tend to be spatially concentrated in practice. Like the developer, the financial institution needs to

know the specific urban conditions in order to assess nsk and avoid undue exposure.

Approach, methods, and data

The approach adopted in this research rests on the political economy perspective. This approach

explains social and economic processes through the investigation of structural conditions, which

include the state and financial institutions as major components in the urban developrnent process. A

political economy approach does not necessarily exclude the juxtaposition of structure and agency.

The acknowledgement of structure and agency is essential in order to explain a process, which is

highly influenced by individuals interpreting structural and local conditions. The theoretical contribution

of this thesis is pnrnarily through ce-conceptualizing and re-interpreting the nexus between structure

and agency in the particular sphere of real estate development.

The realist method as developed by Sayer (1984) is used as a critical tool in this research. This

methodology assigns the agent a critical role in reproducing structure, and it combines necessary and

contingent conditions in expiainhg events. The multiplicity of events, mechanisms, and structures,

provides a useful framework for the anaiysis of real estate and office development.

Office development is not strongly theorized. Harvey provides a general frarnework for the

analysis of the built environment, but in his level of abstraction he under-emphasizes the specific

charaderistics of each part of the buiit environment and the agents that reproduce the structure in

which new rounds of development take place. At the m e time, day-today concepts like 'developer'

are only vaguely defined. One way to analyze real estate development is through 'structures of building

provision' (Ball, 1986). This method of anaiysis suggests that each development is the end result of a

variety of social agents and mediating institutions. To be able to interpret office development as a

particular segment in the buin environment means that exact definitions of the process and the agents

are necessary. Sayer suggests that in a world that is stratified and differentiated, complex relationships

need to be 'unpacked'.

The realist approach emphasizes exact definitions of concepts and wams against the notion of

'chaotic conceptions', in which objects are grouped into categories that have little or no intemal logic or

structural interaction. The idea of using exact definitions is crucial in the realm of office development.

since the dynamic nature of this sector and the fact that in the process of development, a number of

different agents are involved. These agents are ditficuit to categorke, because the functions they

perfonn and the roles they play can be combined in different ways at different times. Hence, to

understand office development, the use of well-defined concepts and the unpacking of everyday ternis

are necessary to provide a sense of clanty.

The term 'real estate developer', commonly used by joumalists, real estate industry

professionals, govemment agencies, and academics, is a 'chaotic concept'. Academic writing

considers the real estate developer as a key agent in the development process, but does not offer a

consistent definition. The developer is sometimes conceived as the catalyst of development. This agent

initiates, coordinates, manages and brings the development from the stage of concept to the point of

completion (Marriott, 1967). Harvey (1985) uses the tenn 'speculativedeveloper, based on the idea

that a developer sells land or makes improvements to land for speculative purposes only. This notion of

the developer also fails to capture the corn plex functions performed by this type of agent.

Within the development process four major types of agents are active: developers, land

owners, financial institutions, and construction companies (Barras, 1979b). These roles can be

embedded in one organization. For example, a developer may be the land owner and the construction

company; a financial institution may assume the role of a lender, land owner, or developer. Pratt (1994)

suggests that the view of the propecty developer as a unitary category is misleading: 'there are a

variety of forms that the 'developet may take. The exact speclication of the developer will depend

upon a whole range of contingent conditions and so cannot be identified a priory' (p. 203).

In this thesis I use the term 'real estate company' to descnbe an organization that engages in

various functions that are related to real estate development and investment, primarily development,

redevelopment, and ownenhip of real estate properties. The terni 'developer' is used when the major

activÏÏ of a real estate company is development. Development is improvement to land either through

the production of new properties or the redevelopment of existing buildings. A major, but not exclusive,

role of real estate companies is to develop real estate assets. However, real estate companies do not

develop office buildings or other structures a l the time, but they also engage in other operations. Real

estate companies may engage in 'ownenhip' and 'trading' of real estate properties, but not necessanly

in developrnent. The term 'real estate sector' is used to situate real estate development within a broad

range of economic activity. It is a faidy loose terni, which coincides with that branch of the economy

designated in the Canadian Standard Industrial Classification as 'Real Estate Developers and

Operaton'. In addition to the traditional real estate mmpanies, financial institutions may assume the

role of developer for a short or long period of time, and may peiform the role as ownea of office

buildings. Since their main role, however, is not real estate development or ownenhip, the term

'financial institution' will be used as a distinct category.

The causal connections, as suggested by the realist approach, can only be discovered through

intensive research. In the real estate sector in general and in office development in particular extensive

data is limited. This, and the fact that there are very few real estate companies whose major business

is office developrnent, makes the use of intensive research very important. Research presented here

relies heavily on data and information that were obtained through a multi-faceted collection process.

Consequently, this thesis is primarily qualitative research based on insights gained through careful

examination of a multitude of sources including newspapers, trade joumals, official company reports

and company brochures. Information was obtained through semi-structured interviews with prominent

participants in, and observes of, the commercial part of the real estate industry in Canada. Extensive

data on building permits at different spatial scales and a comprehensive office building inventory for the

Toronto Census Metropolitan Area were obtained.

Thesis organization

Chaoter One provides a set of theoretical considerations, synthesizes major components of different

approaches analyzing real estate, and re-conceptualizes office development by focusing on real estate

companies. Three major approaches to real estate development are discussed: neoclassical, political

economy, and institutional. From these approaches, selected components that are considered as

cornentones for understanding off'ke development are chosen. The major part of this chapter consists

of an analysis and synthesis of secondary Merature.

Cha~ter Two outlines the condiions for offm development in Toronto. In order to establish a

Toronto case study of office development, the physical, economic, and politml conditions will be

addressed. stressing the crucial position of municipal organization. This chapter also provides the

methodological framework. Realist methods are explained and related to the study of real estate

development. In the last section of this chapter, the type of data and sources utilized are described in

detail.

Cha~ter Three provides a broad historical account of the modem commercial real estate

development industry in Canada. Focusing primariiy on the publicly heid real estate companies, which

are abo the most spatially divenified companies, this chapter sketches the dynamics of this sector in

Canada. This chapter also establishes a plaîform for the interpretation of the practices of office

developen in the Toronto area by identifying major developen. This identification procedure highlights

the role of local, Toronto-based, companies that have their main field of operation in the Toronto area.

Cha~ter Four addresses the role of finance capital and financial institutions in financing office

development. In this chapter both the perspectives of real estate companies and financial institutions

regarding real estate financing are considered. Financial institutions often undeaake office

development for investment purposes and perform the same functions as real estate companies. This

role, together with their spatial practices in the field of offie development and ownenhip, is a key

cornponent of this chapter. Finally, I present some preliminary observations and thoughts on the role

played by transborder capital flows in real estate development.

Cha~ter Fihm investigates the practices of real estate companies using the conceptuaiization of

'three dimensions of capital switching' within the Canadian urban system. The investigation of the

practices of real estate companies is positioned in the context of building cycles. Office building cycles

at different scales and locations have spatially discrete patterns. I argue that office-building cycles

shape the fields of operation of real estate companies at the scale of the Canadian urban system. The

next two chapten move from the national to the metropolitan scale. The empirical findings of the case

study of the Toronto Census Metropolitan Area are presented in chapten Six and Seven.

Cha~ter Six documents the development of the office building inventory in Toronto in the last

fifty years. Contrary to a common perception based on the high visibility of a limited number of high-rise

office buildings in Toronto's Financial District, the stock of office buildings is far more heterogeneous. It

ranges from a large number of srnall and mid-size buildings to a limited number of large-scale

structures. In ternis of spatial patterns, office buildings are grouped into office districts. These office

districts provide a variety of operational fields for specialized office developen.

Cha~ter Seven articulates the argument of spatial selectN'i of office developen within the

Toronto Census Metropditan Ares. The distinctive spatial operations of developen support the

argument that real estate capital is highly specifc and embedded in particular spaces. The concept of

'office development district' is introduced; these districts sct as the spatial containers for different

developen and at the same time are prduced and reproduced by real estate companies.

CHAPTER ONE

THEORlZlNG OFFICE DEVELOPMENT

It is the purpose of this chapter to extract from the broader literature on real estate development and

from specific writings on office development principal arguments, which help to understand office

development across urbm systems and parkulariy within metropolitan areas.

The structure of this chapter is as follows: first, principal literatures or approaches will be

discussed. The neoclassical, the pollical economy, and the institutional approaches each contribute to

the understanding of office development. There is considerable scope in synthesizing insights from

these three approaches. The second part of this chapter focuses on distinct sub-processes or

components of the real estate development process. These components are building cycles, the

involvement of finance capital, the role of real estate companies, the role of the state, and issues which

are related to the specific settings of real estate development within metropolitan areas. A third part of

this chapter reconceptualizes office development by putting real estate development companies into a

central position.

1.1 Principal Approaches Research on real estate development has relied on quite different approaches. The neoclassical

approach with its focus on the demand-supply aspects of real estate development dominated until

about 1970. Beginning in the late 1960s and the early l9ïOs, another set of approaches emerged and

was employed to analyze real estate development. Scholars, drawing upon the writings of Man,

became interested in the logic of capitalist accumulation as a major factor dominating the production of

real estate properties. The forces of capitalisrn and its monolithic nature were unpacked in the 1980s

by political econorny analyses and institutional approaches. From a thematic point of view, most of the

early research was concemed with housing and less with commercial or office development. Starting in

the 1980s, a growing proportion of research was focused on commercial real estate development,

including retail, industrial, and office development.

1 -1.1 Neo-classical approaches

Researchers relying on neoclassical approaches have studied office development or 'office markets' by

focusing on market forces. Neo-classical approaches used the demand-supply equilibrium concept in

attempts to explain how office markets work (Fisher, 1992; DiPasquale and Wheaton, 1992; Clapp,

1993; 1992; Mills, 1995). Atternpts have been made to explain economk mechanisms, primanly price

adjustments, that shape office markets (Rosen, 1984; Hekmm, 1985; Shilling et al., 1987; Keogh,

1994; Henneberry, 1999). Vacancy rates, for example, reflect the balance between demand and

supply. and demand is detennined by macro-economk conditions, such as business cycles.

Considerable arnount of research has been oriented toward modeling o f f i i building cydes (Barras,

1983.1987.1994; Barras and Ferguson, 1985,1987; Wheaton, 1987; McGough and Tsolacos, 1997).

Another research Stream mthin the neoclassical conceptual framework has been exploring the benefiis

of portfolio diversification based on different propeity types and multiple locations (Hartzell et al., 1987;

Eichhok et al., 1995; Hoesti et A., 1997; Hamelink et al., 2000).

According to the neoclassical perspective. in a market economy, exchange takes place on the

basis of prices determined by the interaction of supply and demand. In the case of real estate, rent is

the price a tenant pays for occupying a paiücular space. The interaction of demand for real estate and

the supply of rental propeflies detemine the level of rentals. Price is detemined by demand. and

supply follows, rather than influences demand (Harvey, 1987). The real estate development pmcess is

therefore demand-driven. Agents engaging in the development process are assumed to act in unison,

collectively providing development at the right time, and reacting automaticalty to the structure of

demand (Boume, 1976). The model implies the existence of a perfect market and the rapid elimination

of any price differences. Both consumers and producen seek to maximire utility and profiiability, and in

doing so they are unhampered by social. legal, or local constraints. However, recenüy some writers of

the neoçlassical school have stressed the role of supply in structuring property markets (D'Arcy and

Keogh, 1997; Nanthakumaran and Watkins, 2000).

As Lichfield and Darin-Drabkin (1980) note, real estate developers operate on a profit-

maximizing basis by considering alternative projects, and selecting among them on the basis of

maximum profiiabiltty per unit of investrnent. Apait from rationality and profa maximization, there are

severa! other assumptions incorporated in the demand-supply model. One such concept. perfect

cornpetition, relies on a simplification of real estate markets by assuming that products are

homogeneous, that there are large numbers of buyers and seilers, and that actors have perfect

information.

However, authon relying on neoclassical frameworks, have increasingly recognized urban

specificity as a major condition shaping supply of and dernand for land and property. As Bakhin et al.

(1988) observe, the property market is very imperfect. In practice, the property market is not one

market but is divided into a number of sub-markets. Property itself is not homogenous and divisible into

small and uniform units, but is instead heterogeneous and comprises different sles, each with their

own characteristics Sites with different characteristics give rise to differential rents (Coakley, 1994;

Rabianski and Cheng, 1997). In the simple case of a monocentric city, an integrated land market

shapes the pattern of land use resulting from the interaction of land prices and location bids by the

different sectors of the economy (Alonso, 1960). This bidding process leads to the emergence of

districts, for exarnple, a financial district, a legal district, or a residential district (Archer and Ling, 1997).

Land prices decrease consistently from the city's centre, because they reflect the value of accessibility

which is maximized in the Central Business District. The land market described by Alonso (1 960) has a

single continuous price gradient because it is integrated. Recently, this spatial integration has been

questioned. The distinction between downtown and suburban districts within the metropolitan area and

the idea of the 'polycentric city' (Ladd and Wheaton, 1991 ; Berry and Kim, 1993) indicate that in fact

the land market is segmented for a variety of reasons. Evidence of multiple price gradients, mostly

unaffected by proximity to downtown suggests that the market is not differentiated with respect to any

single location, but that the market is segmented within the rnetropolitan area (Clapp et al., 1992; Hoch

and Waddell, 1993; Hanink, 1997; Rabianski and Cheng, 1 997).

According to the neoclassical approach, the intensity of real estate development is shaped by

the land value gradient or a series of land value gradients. Transportation lines, which converge at one

location, give rise to what has been referred to as the 'peak land value intersection (PLVI). As a result

of maximum accessibility, land values at the PLV1 are the highest in the city. Demand for space results

in soaring land costs, which reflect the potential value of the land if built upon to the maximum

allowable extent (Ford, 1994). In these locations, the cost of land is the major component in office or

other real estate development. Capital is substituted for land as large amounts of capital are invested in

the erection of more intensive land uses to compensate for high land values (Baume, 1967). In this

case, large-scale office buildings are predominant as a resuH of financial calcu!ations emphasizing

maximum retum on investment (Willis, 1995).

The assumptions regarding a perfectly functioning market have been heavily criticized. Harvey

(1973) argued that land prices in the CBD do not depend on locational advantage, because land

owners want to achieve high rents. Similady, Ball (1985) suggested that large-scale financial

institutions develop office buildings in high-priced locations in the city centre to minimize the risk of

premature obsolescence. The property market is ubiquitous, and there is no formal organized

marketplace, central agency, or instlution, where prices are quoted and publicly witnessed. tnstead of

a large number of buyen and seller's, there are relatively few with sufficient finance to invest; therefore,

financial institutions and property nvesbnent companies dominate the pmperty market. In some cases,

there is no freedom of entry into the real estate market as would be expected under perfect market

conditions (Markusen and Scheffman, 1977; Kostin et al., 1989), and as monopoly or oligopoly power

occur, the geographic division of the market leads to imperfect cornpetition. Another criticism of

neoclassical modek argues that maximizing pmfiiability may not be the prime objective of either the

space user or the real estate developer. Also, changes in income and business conditions and the

difficulties in obtaining up-todate knowledge may prevent the punuit of maximum profits (Momson,

1992). Criticism based on empirical observation about office development indicates that the high cost

of land is not necessarily the reason for large-scale buildings. Feagin (1988) argues that despite the

fact that land costs are only a small fraction of the total development costs, high-rise office buildings

were erected in downtown Houston.

Although it may be generally the case that land values and building densities are strongly

related, the question of how land value surfaces are produced is not adequately addressed by the

neoclassical approaches. Accessibility depends on both the articulation of the publicly produced

transportation system and the spatial patterns of customers or input sources. These spatial pattems

are long-lasting, and their expianations require a form of historical analysis that the subscfibers to the

neoclassical approaches would rather stay away from.

Contrary to the tenets of some of the neoclassical approaches, the supply of buildings is

relatively inelastic, and the changes in the building stock and location are slow due to the durability of

buildings and the small proportion of real property of any type coming ont0 the market at any one time

(D'Arcy and Keogh, 1997). The property market is, therefore, in a constant state of disequilibrium. The

actors who supply the market also do not necessarily respond to demand as assumed in the simple

demand-supply relationship. Various factors, such as taxation, national interest rates, and govemment

policy and subsidies, determine the framework of supply. Real estate developers do not constitute a

homogeneous entity, but rather they make up a group of multiple agents with dÏfferent interests

(Beauregard, 1993; Pratt, 1994). Finally, development often occun speculatively, only remotely related

to actual demand. Development booms may be related to the sharp expansion of money supply, as

was the case in the 1920s (Willis, l995), and more recently in the 1980s (Ball, 1994; Fainstein, 1994).

A recent. and a useful, strand in neoclassical research is the application of portfolio theory. The

use of portfolio theory in real estate analysis has emphasized the position of real estate assets as

distinct financial vehicles that can be switched between products and places (Miles and McCue. 1984;

Coakley, 1994; Hoesli et al., 1997). The reasons for capital switching are emerging opportunities, which

corne about through a change in existing conditions, such as different retums on capital. Different

investment vehicles, different property types, and different locations, possess different rates of retum.

The purpose of this type of analysis is to detenine the optimal resource allocation within a company's

investment portfolio. To combat the perils of unceilainty, diversifikation strategies, including different

property types and different locations, are proposed. In this avenue of research an important topic is

the investigation of the benef i of divenifikation at a number of geographic scales. Corporate Cnancial

interests consider spatial diversifkation as an instrument that is mainly designed to optimize risk-return

relationships (minimizing risk while maximizing retum) of real estate portfolios.

lnveston have sought to divenify according to property type andlor according to geographical

area. The logic of diversification baseci on property type lies in the belief that retums to each type are

determined by different economic 'driven' (retail performance is diiven by consumer expenditure. office

retums by growth of seMce employment. and industrial performance by manufacturing production).

While there are common factors (like GNP growth and interest rates), it is assurned that these different

'divers' do not coincide across different regions, and hence spatial diversification is beneficial.

However, the usefulness of the region as a unit of analysis has been the subject of much debate

(Hoesli et al., 1997; Hamelink et al., 2000). Within portfolio theory, switching strategies between

different property types have been considered as more beneficial than spatial diversification. Spatial

diversification has been more problematic to conceptualize, since it depends on a number of scales

and a multitude of definitions of regions. In general, analyses based on metropolitan statistical areas in

the U.S. suggest that the largest urban areas are the favoured locations for real estate investrnent.

However, the market is segmented: institutional investors prefer to invest in the largest urban areas

while private investors have more dispersed geographical patterns (Shilton and Stanley, 1996; Lindahl,

1 997).

Overall, the principal shorkoming of the neoclassical approach is the absence of the public

sector as a major participant in the real estate developrnent process (although the role of institutionai

structure was addressed by some researches, for example, Bal et al. 1998). Real estate development

is not driven entirely by market forces and an orderly function of real estate markets involves

govemrnent participation. Also, neoclassical approaches emphasize the strong relationship between

building intensity and land values. However, land value surfaces are modulated by accessibility, which

is collectively produced through investment in infrastructure and through the interdependence of many

land uses. There are also many exceptions. For example, high land values predominate in the inner

city. but high-rise buildings do not materialize because of many factors. including social struggle over

the built environment. There are interesting ideas embedded in portfolio theory. Real estate assets are

seen as tradable assets that shift between property types and locations. In later conceptualizations I

will draw strongly on this concept.

1.1.2 Political economy approaches

Harvey's work (1 978, 1982, 1985) on circuits of capital and the role of investment in the production of

the built environment has provided the theoretical framework for a political economy approach, which

focuses on the suppiy of capital as the driving force of real estate development. Harvey's initial

argument suggests that in the long nin, in the absence of profitable investments in the primary

(manufacturing) circuit of capital accumulation, capital will flow into the secondary circuit, where capital

is deployed in the production of the built environment.

Hanrey's contribution to understanding real estate development has been important in other

respects. Harvey acknowledges the important role of the state in facilitating real estate development.

Both the private sector and the state are part of the capitalist system. The different levels of the state

(federal, intermediate, and local) provide the conditions of the continuous process of real estate

production. At the local level, govemment regulation is needed in order for the speculator-developer to

function (Hatvey, 1985, pp. 68-69).

f i a ~ e y discusses the nature of uneven spatial development of the buift environment at

different spatial scales, impiying that uneven development is an essential condition for capital

circulation in capitalist economies (Harvey, 1985, pp. 19-20, 155-64). In addition, his idea of capital

switching paves the way for the notion of spatial switching. Haivey acknowledges that capital can flow

from one place to another (Harvey, 1985, p. 13). These switching practices, between circuits/sectors

and places are crucial practices of real estate companies as will be demonstrated in later sections.

Other researchen did not substantiate Harvey's argument conceming capital switching between

circuits of capital accumulation. After research on the sources for real estate investment in Houston in

the 1970s and l98Os, Feagin (1 987, 1988) suggests that "financial institutions, both those inside Texas

and those outside, channeled much surplus capital from a variety of sources into Houston real estaten

(1 987, pp. 182-83). Beauregard (1 991, 1994) argues that primary-circuit capital may seek other outlets

than the built environment. However, in spite of the difficuity of establishing a clear link between

industrial and real estate capital in the short nin, Harvey's ideas remain influential in establishing an

office development theory (see section 1.3).

The recognition of the real estate sector as an independent or nearly independent sector of the

econorny, which requires its own analysis, has led to an emerging research agenda within the political

economy approach (Feagin, 1987; Haila, 1991 ; Beauregard, 1994; Fainstein, 1994; Leitner, 1994). In a

preliminary outline. Haila (1 991) argues that the real estate sector has an 'intrinsic dynamic' rather than

being extemally driven by the switching of capital between different circuits of accumulation. This

dynamic shapes investrnent patterns in real estate assets, and is based on the intemal characteristics

of real estate pmperties, narnely tradabiiii, divisibili, and mobili. Real estate assets are tradable;

they are bought and sold in the market. like other types of financial assets (Harvey, 1982). Although

properties cannot be traded in small units in the same way as stocks (Coakley, 1994), they can be

divided into large units because the ownenhip of properties can be shared by a number of

investordpartners. In addition, the real estate sector is segmented into commercial and residential sub-

sectors, and into distinctive property types, such as office, industrial, and retaü (Beauregard, 1994). It is

further segmented spatialty. Some &ers acknowledge that the real estate sector is hrgely a 'local'

business, ahough some components of this sector are beyond the local realm (Logan, 1993; Bryson.

1997). Other theonsts suggest that real estate properties have becorne increasingly 'delocalized',

because some aspects of the real estate sector (architecture, reaf estate ownership) are shaped by

'global' forces (Sassen, 1991 ; Knox, 1993; Savitch, 1995; Beauregard and Haila, 1997). The complex

spatial configuration of real estate investment is further segmented as a resuit of the spatial divergence

of building cycles and the fact that at the level of urban systems different cities experience different

building cycles (Leitner, 1 994).

Within the political economy approach, Marxist authors emphasize issues of land ownership

and rent as core elements in their framework of explaining the production of the built environment

(Harvey, 1 982, 1985; Haila, 1988, 1990, 1991). lnstead of the assumption buik into neoçlassical land

use rnodels, Marxist interpretations suggest th+ possibility of power in the han& of few land owners.

(The existence of several kinds of land owners with distinct interests and modes of behaviour is

recognized by Massey and Catalane, 1978.) In addition, it is suggested that land has a monopolistic

character. Hanrey argued that there are monopoly prîvileges inherent in any fomi of private property in

landn (1 985, p. 102) and Logan and Molotch (1987, p. 23) have wnsidered land markets as 'inherently

monopolistic'. This enables land owners to manipulate or control the land market by charging monopoly

rent.

The major critique of the political economy approach revoives around its high degree of

generaiization and abstraction. More specifically, the relations between the general conception of the

structunng dynamics of the development process and the specific interests and strategies of individual

agents remain to be established. Much more attention needs to be given to the ways individual f i n s

and agents interrelate, and how various economic and political factors. which govern their strategies,

are incorporated into a structure-agency framework (Healey and Barrett, 1990). Also. the impossibility

of documenting some assertions such as flows from the pnrnary to secondary circuit (Feagin, 1987;

Beauregard, 1991; 1994) has attracted criticism (Ball, 1994). Also, there is little research on the role of

transnational flows cf capital in real estate development (Logan, 1993). Regarding the idea of land

rnonopoly, the fact of concentrated ovmenhip in real estate does not automatically mean that a

condition of monopoly is attained; monopoly might only occur in locarued and isolated situations

(Houghton, 1 993; Fainstein. 1 994).

1.1.3 Institutional approaches

Advocates of institutional approaches argue that it is essential to understand the institutionai foms.

relationships, and practices of the real esMe sector. The starting point s the institutional articulation of

the real estate sector and the patterns of netwoiks and relationships between agents. This results in an

institutional rnap of the development industry (Healey. 1992b). As Healey and Banett (1990, p. 93)

argue:

Wuch more attention needs to be given to the way individual fims and agents intenelate in the negotiation of

parkular development projects and how, through these transactions, land and properly 'markets' are constituted

and built environment invesbnent decisians madeg.

Healey (1 992a) and Momson (1 992) have provided expositions on institutional approaches to the reaJ

estate industry. They argue that the focus of institutional approaches is pnmarily on identifying the type

and composition of agents involved in the real estate development process and revealing the interests

and strategies they adopt. The nature of the relationships which occur between acton, their actual

roles, and the relative influence they enjoy in the negotiation of particular projects are analyzed in tum.

Healey (1992a) presents an institutionai modei of the real estate development process that

takes into account the complexw of the events and agencies involved in the process, and the diventty

of forms the process rnay take under different conditions. At the theoretical level 'the critical issue here

is to make the connection with the social relations expressed in the prevailing mode of production,

mode of regulation, and ideology of society within which development is being undertaken" (Healey,

1992a, p. 37).

Various authors have constmcted models about how the actors interact and how the

development process operates. Drewett (1973) presents the simplest model with the focus on the

developer. Arnbrose (1986) suggests a more complex model. There are three sets of agents in

Ambrose's model: the finance industry, the state, and the construction industry. All three sets interact in

the process of creating the built environment (Ambrose, 1986). Apart from depicting the development

process, various researchers have written about the development process in ternis of the stages

developers go through from initiating a scheme to its completion (Drewett, 1973; Cadman and Austin-

Crowe, 1983; Ratcliie and Stubbs. 1996). Many of these stages and issues, such as finance, classes

of developen, or landowners and real estate agents, within the development process have been

elaborated on in depth by other researchen (Cadman and Au&-Crowe, 1983; McNamara, 1985;

Ambrose, 1 986).

These works focus on agents and differ from the neoclassical and Manist approaches in

being concemed with the details of how the davalopment process takes place, rather than makng

generalizations and engaging in abstractions. Agents are not treated as homogeneous entities, but are

clearly differentiated (O'Malley, 1989; Morrison, 1992). Institutional scholan have noted how

developen interact with other intemediaries within the development process. How developers interact

with the state was the focus of several studies undertaken by researchers of the institutional school

(Am brose and Collenutt, 1 975; Lonmer, 1 978; Ambmse, 1 986; Healey, 1 998a). The extensive attention

given to the state is in contrast to the neoclassical literature, which ignores or downplays the role of the

state in the supply-demand model, or the Manist literature, which regards the state as a mediator of

capital flows between the primary and secondary circuits without providing analyses of its exact role.

Institutional analyses have been criticized because they place too much emphasis on the

actors and their interactions. They have also been cnticized for being too descriptive and for not

adequately focusing upon structural factors which govem the behaviour of agents. The descriptive

nature of some of the institutional analyses and the lack of attention to the economic and political

conditions which constrain the actors in question, present major limits to their analytical ability.

Structural factors have to be embedded in institutional analyses, since they affect the provision of real

estate assets (Morrison, 1992).

1.2 Components of the Real Estate Development Process The real estate development process is shaped by various forces, and involves severai types of

agents. Different elements in the approaches discussed in the previous section contnbute to the

knowledge of this process. In this section I merge conceptualizations derived from various approaches.

These concepts are fhen used in an attempt to construct a theory of office development, which will be

presented in section 1.3.

Four major elements are considered as pivotai in the literature on the real estate development

process. (Capital switching was addressed before and will be included later in the conceptualization of

the real estate sector.) These are building cycles, financing arrangements, the role of the state, and the

role of real estate developers. Building cycles are the cumulative reflection of numerous actions that

produce real estate properties. The differentiation of building cycles by property type and location is

addressed, and macroeconomic forces shaping the development process are considered. As is

demonstrated in this section, real estate development cannot proceed without substantial financing that

is outside the realm of the Company that develops a parthlar propeity. As a result, real estate

development depends on the availabiiii of financing. The state, at its various levels, is an essential

part of the development process, since development occun in existing settings that are regulated by

the state. In addition. development is place-specific and developen need to interact with the state level

that is relevant. Finally, the indMduals or organizations that initiate, execute and manage the process

are real estate developers. Their pivotai role as the shapen of the built environment has been

recognized in the literature.

1.2.1 Building cycles and their spatial aspects

Construction activity and investment in the built environment are subject to cyclical patterns known as

building cycles. Building cycles play a major role in neoclassical and in Marxist approaches in

explaining urban development. Kuznets (1 930, 1958) first identified long investment or building cycles

with a period of up to twenty-fie yean, and Hoyt (1933) documented the cyclical pattern of land prices

in Chicago. Harvey's analysis of real estate development in the United States and Britain suggested

that investment in real estate depended on the cyclical nature of the economies of these two countries

(Hawey, 1985).

Building cycles encompass a multitude of components that have to be separated. First,

building cycles are a 'family of property cycles' (Barras, 1994). These cycles Vary in length from long

cycles of 20-ta-30-year periods, to cycles spanning 9 to 10 years, and short cycles of 4 to 5-year

duration (Barras and Ferguson, 1985; Barras, 1994). Second, instead of treating the built environment

as a homogeneous product (Harvey, 1978), real estate products should be differentiated. Within the

real estate sphere each product has a different cycle, which is especially apparent when residential and

commercial development are compared (Ball, 1994; Barras. 1994; Beauregard, 1994; Keogh, 1994).

Within the commercial sector an additional disaggregation is possible, namely between office, retail

and industrial sub-secton. This is required, because different 'drives' propel each sub-sector (for

example, office development is driven by the growth in office-based ernployrnent, Hoesli et al.. 1997).

Building cycles are also shaped by govemment regulation. best exemplified by zoning bylaws.

Govemments tend to enforce restrictive regulations during downtums, and introduce more liberal

regulation during the uptums in building cycles. In an article titled 'The politics of real estate cycles',

Weiss (1991) suggests that govemments intewene in the real estate sector during diierent phases of

the real estate cycles as a resuk of pressure from the large-scale real estate companies. During boom

tirnes, the status quo is prefened, while in downtum periods, the big developers advocate govemment

intervention. Weiss explains the passing of zoning bylaws in Los Angeles and New York in the eariy

twentietb century as the aftermath of a real estate downtum. He also attributes tax policies to buildings

cycles, suggesting, for instance, that the 1981 U.S. tax ad, which offered financial incentives for

developrnent, passed during the depths of a severe recession. Willis (1995) argues that govemment

regulation woiks in tandem with building cycles. Height restrictions on buildings in Chicago in the late

nineteenth and eariy twentieth centuries were shaped by the appropriate phase (boom or slump) in the

building cycle.

Office development has received a great deal of attention in the research on building cycles.

Neoclassical economists attempted to model office-building cycles by examining demand and supply

factors (Barras, 1983; Wheaton, 1987; Downs, 1993). To a large extent, the neoclassical analyses

have failed to discem spatial variations of building cycles by suggesting a synchrony of subnational

building cycles (regional and local) with national cycles as part of the notion of equilibrium (Easterlin,

1968; Gottlieb, 1976). A few studies explored the uneven spatial manifestations of building cycles

(Leitner, 1994; Henneberry, 1999) suggesting, 'the particular cycles in each c w occurred in somewhat

different times and reflected different local conditionsn (Wilfis, 1995, p. 169).

Building cycles are not unifom geographically and have long endurance. The notion that

building cycles should be considered in accordance with the geographic sale under investigation is

increasingly recognized as an essential element in building cycle analysis, since local conditions affect

the outcome of building cycles in different cities (Leitner, 1994). In examining office construction cycles

in downtown areas of major U.S. cities, Leitner (1994) illustrates how local circumstances interact with

wider financial and political trends to produce unique outcomes. Despite the trend toward convergence

in the timing of office construction cycles between different cities, individual cities continue to show

differences in the ways they are affected by and participate in national and international trends.

Changes, such as econornic restruduring, growing demand for office space, the relative attractiveness

of commercial real estate, and govemment regulations have differential effects on urban property

markets. Cities experience different development cycles in t e n s of timing, length and volume, and in

ways that reflect the specific conditions in these localities and their changing position within the larger

urban system (Leitner, 1994).

Henneberry (1999) provides a different interpretation of building cycles. He argues that

property investment has become dislocated from user requirements, and that building cycles are not

shaped by local conditions but rather by the preferences and decisions of major financial investors. In

contrast to the political economy approach advocated by Leitner, he suggests a neotlassical approach

to explain spatial variations of building cycles at the regional level. Based on Keogh's (1 994) analysis,

the propeity market is depicted as a set of three interrelated components: the user market, the

investment market, and the development market. Each is a trading arena where the interaction of

demand and supply determines the price. Changes in use values (rents) or in required rates of retum

on property investment (yields) produce rapid changes in investment (capital) values. Developen who

monitor the market on a regular basis will respond to these changes by increasing or decreasing

development activii. Spatial differentiation is oniy a marginal component in this analysis (Keogh,

1994). According to Hennebeny, the timing of regional office building cycles is determined by the

property price mechanism; in other words, the interplay between rents, yields and capital values. Each

market has its own building stock, vacancy rates, and demand; thus rents minor the local economy.

Rents and yields have locally ernbedded components. As a result, the manifestation of spatial

differences is echoed through the property price mechanism. This argument cancels out the need to

look at specific conditions, since the development is mediated through the property price mechanism.

The explanation of spatial differences on the basis of the price mechanism is insufficient,

because it does not reveal the origin of these cycles and why such differences persist. To explain

building cycles at the regional or the metropolitan level, general economic conditions as well as

conditions specific to the metropolitan areas in question have to be addressed. By combining these

sets of considerations inter-metropolitan variations can be explained.

Building cycles provide a general framework for the analysis of office development The

argument that building cycles Vary across space contributes to the explanation of uneven office

development. Also, spatially diverse building cycles indicate that there is a role for the local arena in

shaping office development. The specific local conditions have to be revealed in order to understand

the uneven investment in office buildings across urban systems and within specific metropolitan areas.

1.2.2 Financial institutions and real estate development

Early Marxiçt writing on urban development has reasoned that real estate development is a 'by-product'

of the capitalist production system (Lamarche, 1976). According to Lamarche, there is a specialized

type of capital, 'property capital', whose sole function is to produce properties in order to increase the

overall efficiency of the capitalist system. This definition puts an emphasis on pmperty as 'servant' to

capital and not as a separate sphere of capital accumulation.

These eariier conceptualizations were supeneded by Harvey's work on conceptualizing the

flows of capital within the capitalist system. According to Harvey's general theory, capital invested in

real estate originates mainly through industrial production. As a result of crises of overaccumulation in

the 'productive' sectar of the economy, capital will flow into other circuits lodting for profitaMe

investments. Harvey adds that through the mediation of financial institutions surplus capital

accurnulating in manufaduring is channeled into the real estate sector (Harvey, IW8, 1982, 1985).

However, Harvey does not elaborate on the role of financial institutions as mediaton; financial

mediaton are perceived as instiîutions whose purpose is to channel capital in ways that wouM buttress

the smooth functioning of the capitalist economy. Harvey, like &en from otfter viewpoints, also points

out some of the specific characteristics of real estate development. These characteristics include high

cost, longevity, a long tirne to collect revenue, and the possibility of putting up propeity as collateral.

Therefore, long-terni financing is required and possible. Harvey's influential writing has stimulated

ernpirical work on the financial sources used for investment in the built environment (Feagin, 1987;

Beauregard, 1991, 1994; discussed in section 1.1.2).

The financing aspects of office development were extensively explored in the United Kingdom.

Barras (1979a. 1979b) and Catalano and Barras (1980) examined office development in the United

Kingdom, particularly in London and Manchester. Based on this work, Barras (1979b, p. 50) attempts to

distinguish between different fomis or practices of capital, which involves four different kinds of agents

or fractions of capital:

o commercial capital (the real estate development company);

0 financial capital (funding institutions);

O landed capital (land ownen); and

o industrial capital (the constniction company).

In his model, Barras, contraiy to Harvey, ignores the role of the primaiy circuit, and treats industrial

capital as primarily related to construction companies. No empirical work was done on the flows of

capitals that eventually find their way into real estate development. Feagin (1987, 1988) is aware of the

different fractions that constitute finance capital. Following Harvey's idea of capital switching, he claims

that capital invested in real estate assets is the result of companies divedng profis into real estate

using the mediation of finance capital. In the case of real estate investment in Houston, Texas, he

argues that different types of finance capital were involved: "The pnmary source was finance capital,

including commercial banks, insurance companies, investment trusts, and mortgage companies"

(Feagin, 1987, 182). However, Feagin's interpretation of the role of financial institutions in the real

estate development process is limited to their mediating role, channeling funds from various sectors

into real estate, ignoring their role as ownenimreston in real estate assets.

Other studies in the U.K. suggest that smaller developers have different financial arrangements

than large developen. Large real estate companies depend on the 'global institutional investment

market' and are able to tap the capital markets, while small developers depend on the conventional

bank loan (Bryson, 1997; Lizieri et al., 2000). AIso, different requirements of financial institutions are

driving specific spatial investment practices. The long-time horizon of life insurance companies and

pension funds operating in the City of London result in reinforcing existing spatial configurations. These

institutions impose their requirements on real estate companies. Banks, on the other hand, hold

essentially short-terni commitments, thus they do not tie real estate investment to particular spaces,

allowing real estate developen greater spatial flexibility (Pryke, 1994a).

Several other studies have distinguished between major types of funding institutions, such as

banks, Me insurance companies and pension funds, and their role in the real estate sector (MacLaran

et al., 1985; OIMalley, 1989; Feagin and Parker, 1990; Logan, 1993). However, different fractions of

finance capital involved in the real estate development process and their role in 'active' investrnent

(ownership or development of properties for income purposes) remains a largely understudied topic.

There are some important exceptions (for example, Des Rosiers, 1984; Pryke, 1994b; Lindahl, 1997).

These studies distinguish between different financial institutions and their role in real estate

development. Des Rosiers examines life insurance companies and pension funds; Pryke analyzes

financial institutions; and Lindahl looks at institutional investon, foreign investon, and real estate

investment trusts (REITs). lnstead of the idea of a generic capital market driving real estate investment,

it has been suggested by Cindahl (1997) that real estate capital Ss comprised of multitudes of players,

each with complex motivations and constraints" (p. 189). These motivations combined with extemal

constraints shape the spatial practices of financial institutions (Pryke, 1994a; Lindahl, 1997).

Rather than tiying to determine the aggregate flows of capital, a different approach to

explaining financing mechanisms or financial instruments is used by writen close to real estate

investment and development practices (Urban Land Institute, 1998). When considering the financial

sources of real estate investment, the distinction between debt and equity should be made. Generally,

debt financing is either short terni or long term, and is used to finance development when the lender

has no equity interest in the property. Equity investment, on the other hand, represents a stake in a

specific project or in a real estate Company (see details in Chapter Four).

1.2.3 The state and real estate development

In general, there are three strands of literature about the importance of the state in real estate

development. First, there is Harvey's insistence that involvement in real estate development is used by

the state as a means to stabilize the capital accumulation process and thereby the capitalist system.

Second, there is a literature which emphasizes the interest of the local state in local growth through

real estate development. The literature on 'growth coalitions' foms an important part of this argument.

Third, a number of theorists emphasize an inevitable structural necessity of state invoivement in urban

development. The following paragraphs address the argument about shoring up capital accumulation

very briefly. and then deak at length with the local state and local growth, and with the local state and

its necessary involvernent in real estate development.

Shonn~ UP c a ~ i t a l accumulation

The state supports the capitalist system through the support of real estate development and different

levels of government have different but important roles in faciliating and creating urban real estate

development (Dear and Clark, 1981; Roweis and Scott, 1981). Harvey (1985, pp. 202-1 1) argues that

post-WWII Kenynesian suburbanization was state-backed, debt-financed consumption to solve under-

consumption problems. After the trauma of the 1930s Depression. the state intenrened with expansive

fiscal and monetary policies. National govemments laid down mies for real estate development through

planning legislation. taxation measures, provision of infrastructure, and planning regulation, and by

granting exemptions of al1 kinds. Govemment participation has occurred even in an environment where

laissez-faire is the core ideology. For instance, in Houston, Texas, a city lacking zoning bylaws,

govemments provided massive infusion of funds into transportation infrastructure. which stimulated

suburbanization. In addition, because of liberal depreciation allowances in the U.S. tax code, much

office construction was carried out not only to make profits from leasing or selling office space, but also

to Save substantial amounts in federal taxes (Feagin, 1984, 1988; Leitner, 1994; Shilling, 1997). In

Ireland, the Urban Renewal Act and Finance Act of 1986 created designated areas for property

developrnent. As a result, a large proportion of office construction in the late 1980s and early 1990 in

Dublin was in the areas that received tax incentives (Maclaran, 1993; 1996).

Growth coalitions

For local governments, real estate development in general and commercial development in particular is

synonymous with economic growth (Rast, 1999). Commercial real estate development seems

beneficial to local municipalities for a number of reasons. First, it increases the local tax base, since

commercial uses (office, industrial and retail) pay taxes more than residential uses per unit of built

area, while not utilizing social services. since the basic necessity for commercial uses is transportation

infrastructure. Hence, commercial uses are major contributon to local revenues. Taxes paid by

commercial uses allow local govemments to provide municipal services wiaiout substantially increasing

residential taxes. Second, it is argued that there is a direct link between real estate development and

employment growth. Real estate development creates jobs directiy in the construction process, through

employment in the built premises (offices, shopping centres and industrial buildings), and by

contributing to a multiplier effect. Recentiy, but also in the past, job creation has k e n considered as

one of the major responsibilities of local municipalities. Third, real estate investment creates tangible

evidence of economic growth (Leher, 1990). A new building or a new shopping centre is a material

proof of a dynamic environment, and can be used as parameters to indicate economic growth.

Shopping centres or office buildings are being used as symbols of economic growth, and are used to

portray rnunicipalities as 'successful' and growing locales; hence they help in attracting fumer

investment. Fourth, no growth (stagnation) or slow growth means relative decline in comparison to

other places. At times of devolution and downloading of responsibilities to the municipal level, growth is

perceived as an imperatîve instrument necessary to keep the quality of life from detenorating. ln this

context, local municipalities often attempt to lure investrnent by providing various incentives for

potential investon (Kantor and Savitch, 1993). Fnially, growth is punued, since local decision-maken

and real estate developers often believe in similar ideas and share common social networks. This

nexus facilitates and enhances cooperation, and promotes the extraction of reciprocal gains accruing

from real estate investment. For example, a case study of Croydon (a subuib of London) suggests a

convergence of goals between the city council, the professional team of planners, and the local

business elite, since al1 have similar interests (Saunders, 1979).

Studies by Molotch (1976, 1993), Mollenkopf (1983) and Logan and Molotch (1 987) have

solidified the theory of growth coalitions (local governments and private enterprises) as promoters of

real estate development. Their main thesis argues that local politics in the United States have revohred

around land development dominated by pro-growth coalitions, in which real estate interests cany out a

major rote. Real estate developers interact with local government as part of their business routine.

They need building permb, zoning changes and infrastructure development. As noted by Molotch

(1 993, p. 32) "each such interaction influences implementation procedures, sets precedents for how

things are done, establishes relations between officiais and citizens, and alten spatial relations and the

social conditions the built environment imposes: Others have argued that 'the principal effect of growai

coalitions is to bend the policy priorities of localities toward developmental, rather than redistributional,

goalsn (Logan et al., 1997, p. 605). A related concept, 'spatial coalition', emphasizes shared social

places as generators for solidification of alliances. A spatial coalition is 'an alliance which draws

support from a variety of social classes, and which seeks to prornote what it defines as the interests of

the area in questionn (Pichance, 1985, pp. 121-22). The precise demands of such coalitions vaiy, but

generally they include the growth of the area. The rise of urban entrepreneurialism aaording to Leitner

(1990, 1994). has increased the quanûly of commercial real estate in the United States. Federal

policies (tax incentives) and aconornic restnicturing have urged uhan govemments to invest and

subsidize large-sale real estate projeds. The basic purpose of these public subsidies, mainly provided

in central cities, was to attract private investrnent to the deterbrating downtown areas, and to convert

disinvestment environments into highprofile settings. In an attempt to redevelop their downtowns and

compete with other cities, local govemments have raised capital to subsidize private commercial real

estate projects. The effect was an increased availability of capital, which in turn encouraged real estate

development (Leitner, 1990). The result in many cases was the construction of edifices, especially

office buildings, that wen much larger than the actual demand for office space. In the late 1980s, this

type of boosterisrn resulted in a fierce competition among cities and increased real estate speculation,

tuming many projects into 'white elephants', which experienced record-breaking vacancy rates.

In Canada, city politics are also about property and the enhancement of urban land values

(Collier, 1974; Gutstein, 1975; Lorimer, 1978; Sancton, 1983). In the late 1960s and early 1970s, some

authon proposed that city councils played the game according to developen' rules by being over-

enthusiastic to fulfill the devekpen' requests (Caulfeld, 1974; Collier, 1974; Gutstein, 1975; Lorimer,

1978). However, unlike the United States, Canadian municipal politics are more regulated and

constrained by provincial-level legislation and monitoring. The locus of pro-growth policy is often the

province, rather than the local municipality. In ternis of planning issues, cities are subject to extensive

provincial review. Therefore, Canadian cities are not in the same position as their U.S. counterparts in

their ability to stimulate and direct growth (Garber and Imbroscio, 1996).

Critique of the growth coalition theory is directed at two major points. First, govemments are

not necessarily pro-growth al1 the tirne. Some govemments seek containment of further development

(Kantor and Savitch, 1993). and anti-growth movements are also visible (Clark and Goetz, 1994). A

number of attempts to curb development often triggered an interventionist public policy aiming to steer

investment decisions as illustrated by London, San Francisco and Toronto. London pioneered a policy

of encouraging office decentralization and banning commercial development. Constant efforts were

made by the central govemment to divert further office development away from the South East of

England. Beginning after the Second Wodd War, the idea of decentralization of activities from the

South East has been a high pnority on the national agenda and a ban on office development in London

becarne a public policy in the mid-1960s (Scott, 1996). In San Francisco, a series of growthcontrol

inliatives set a lirnit for a city-wide growth on al1 commercial buildings and on the height of buildings

since the early 1980s (Ford, 1994; Leitner, 1994). In Toronto, the Central Area Plan, introduced in the

mid-1970s by a newly elected 'reform' council, attempted to liml office development in the tore area. In

addition, local govemments (the City of Toronto and Metropolitan Toronto) promoted the idea of

decentralking development to the surrounding municipalioes (Gad, 1979; Frisken, 1988). In the cases

of San Francisco and Toronto, active citizens groups advocated containment and put this idea on the

municipal agenda. In addition, the coherence of growth coalitions has to be addressed. The degree of

coherence is one of the variables that influence the ebility of growth coalitions to detemine their

development agenda. Some cities have busii?ess communities with an extremely high degree of

coherence, whereas in other cities the business community is less organized and citizen groups are

more influential (Leitner, 1990).

Structural im~era t i ves

There are structural conditions that reguire the involvement of the state in real estate development. The

political economy approach in urban studies has emphasized the role of the state in facilitating land

development (Scott, 1980; Feagin, 1984; Harvey, 1985; Berry and Huxley, 1992) and the role of the

state as an entrepreneur that initiates and controls land development (Haila, 1999a. 1999b). State

intewention is considered a bocial imperative imposed by the selfsestnictive logic of capitalist society

as it is mediated through urban space" (Scott, 1980, p. 170). Harvey (1985) argues that the state

supports and provides the mechanisms that enable the developers to realize their monopoly rents and

Vithout a certain minimum of govemmental regulation ... the speculator-developer could not perfonn

the vital function of promoter, coordinator and stabilizer of land-use changew (p. 68).

Govemrnents are necessary for providing order in the market and enforcing the rules.

Municipal governments are involved in protecting rights of way and property values, they mediate

between conflicting public interests, and they engage in infrastructure provision and provide municipal

services. These roles of municipal govemrnents are essential for real estate development. The notion

of growth coalitions is a contingent manifestation of a necessary condition, since market forces cannot

effectively and efficiently perform without municipal functions.

One of the major roles of the political sphere in shaping real estate development is through

settirig the ground rules in the form of zoning regulations. Govemment regulation manifested through

land-use planning affects real estate development (Roweis and Scott, 1981). Conventional arguments

suggest that zoning bylaws are used to restrict the built environment from the chaos created by real

estate development companies. However, restrictive zoning bylaws are also used to protect real estate

companies from the dire results of economic downtums, and are often advocated by the real estate

companies themsehres. In late nineteenth century and eariy twentieth century Chicago, the height limit

on buildings moved up and down several times in response to pressures from the real estate industry.

The height restrictions passed in 1893 in Chicago and the 1916 New York zoning bylaw were enacted

in the first phase of a real estate recession. Conversely, in the early 1 9 2 0 ~ ~ when the Chicago office

market experienced high demand and low vacancies, the city passed a new bylaw that allowed higher

buildings (Willis, 1995).

Weiss (1987, 1991) explains that the nse of large-scale residential developen in the first half of

the twentieth century in the United States was a result of community builden using the state to displace

smaller speculative builden. Major builden worked with plannen to secure land use planning and

regulation. Together they encouraged highquality development, which became an impassable bamer

for small developen. Generally, large real estate development companies are more favourable toward

public policy initiatives than their small-scale colleagues. Big real estate companies are better equipped

to shape legislation and regulation for their o m ends; consequently they are more likely to play

influential roles in the policyrnaking process Weiss, 1991).

Urban s~ec i f i c i tv and real estate deveîo~ers

Real estate development is not a private venture. As suggested in the previous section, real estate

development inevitabiy requires the cooperation of private and public agents. The production of real

estate involves individual parcels of land, knowledge of the specific market (supply/demand), and

familiarity with the regulatory environment. Therefore, real estate development is mainly a 'local

business'. Recently, it has been widely acknowledged that property markets are more segmented and

differentiated than had been assumed in earlier period (Clapp et al., 1992; Hanink, 1997; Rabianski

and Cheng, 1 997; Healey, 1 998a; Wolverton et al., 1 998; Hamelink et al., 2000). In this type of venture,

the real estate production process is embedded in local conditions (Wilson, 1991). In situ networks are

indispensable for this process to take place.

The importance of place and local conditions has preoccupied the urban literature in an era

when global forces seem to be dominant, especially in industrial production and financial services.

However, in the era of globalization, place also has been recognized as an important ingredient in

economic performance as the specific conditions in localities have contributed to competitive

advantages (Harvey, 1989; Amin and Thrift, 1992; Swyngedouw, 1992). The local 'institutional

thickness', according to Amin and Thrift, has a decisive influence on economic development as place

appean to become of critical importance to f i n s (Amin and Thrift, 1995). This position was stressed by

Healey (1998b). who argued that Sn a world where integrated place-bounded relationships are pulled

out of their localities, 'disembodied' and refashioned by multiple forces which mould them in different

directions. the qualities of place seem to become more, not less, significant" (p. 1531). With regard to

the real estate sector, global, national and regional economic forces rnay produce distinct spatial

patterns of investment However, there appear to be strong links between the real estate sector and

local economic conditions (Turok, 1992; Healey, 1994; Leitner, 1994; Ball and Wood, 1996; Hamelink

et al., 2000).

Urban specbity is even more impoltant in the real estate sector than in finance and industrial

production, since it is concemed with investrnents which have a dimension of immobility. Beyond the

distinct economic conditions, other localty embedded factors shape real estate investment. Real estate

development is articulated differently at various places and times: The exact articulation of the practice

of real estate development is contingent upon which acton are invoived and how they are organized,

as well as the particular historical and spatial contexï (Pratt, 1994, p. 204). In this context, the idea of

'local dependence' advocated by Cox and Mair (1988, 1989) is of importance. Cox and Mair define

'local dependence' as 'a relation to locality that results from the relative spatial immobility of some

social relations, perhaps related to fixed investments in the buiit environment or to the particulaiization

of social relationsn (Cox and Mair, 1989, p. 142). To succeed in real estate development, deveiope~

have to be embedded in local power centres, and have to rely on positive experiences with local

professionals (planners) and decision-makers (politicians). These relations are indispensable to

businesses which depend entirely on local conditions. Many if not most other businesses are less

spatially fixed. To facilitate the real estate development process, operational spaces have to be

detemined and defended. The formation of these spatial relations is time consuming and expensive.

As a result, the importance of iocal dependence intensifies. Cox and Mair's idea of local dependence is

mainly related to localities or municipalities. However, urban specificity depends on a particular

geographical scafe; hence local dependence is possible at the intra-municipal as well as at the inter-

municipal level.

The involvement of real estate companies in local politics in order to enhance their own private

businesses has been widely acknowledged. First, investigative joumalism tends to fonis on and over-

emphasize the scandalous and illegal aspects of this nexus. Here real estate developen are depicted

as capitalist villains appropriating public money for their own gains. A similar line of reasoning was also

pursued by the advocates of the 'conspiracy approach', which culminated in the 1970s in Britain and

Canada, and to lesser extent in the Unes States. These authon insinuated that the relationship

between local govemments and private businesses is 'cooperative'; this cooperation enhances

accumulated profits of private cornpanies. The state. represented by local municipalities, was pomayed

as a coconspirator who destroyed the 'good' (usually old) urban fabric and restnictured the built

environment for the gain of the developers (Barker et al., 1 S73; Caulfield, 1974; Collier, 1974; Ambrose

and Colenutt, 1 975; Gutstein, 1 975; Lonmer, 1 978).

However, devebper-government relations need to be seen as a necessary element in the

production of buiit commodities that are essential to the suivival of the capitalist mode of production.

Without close-ties, common social networks, shared beliefs, and common goals, real estate

development is unlikely to occur at the sa le and scope experienced by major cities. Govemrnents are

an integral part of the smooth functioning of real estate production; they hold the 'keys' that enable

developrnent. In the same way that capital is considered the raw material of development, govemment

regulation is a 'manual' attached to each devekpment. The essence of these relations is not

embedded in persona1 misderneanon, but deeply established in the daily practices and the structure of

relations in a profit-maximiring culure which needs a 'cooperative mode' to make real estate a

profitable business. Moreover, it is important to bear in mind that these practices do not reflect only the

developers' interests. There is a twoway rebtionship. Govemments strive to promote their own

objectives and they 'use' real estate as a major vehicle to accomplish their goals, namely advance their

political agenda.

1.2.4 Real estate developers

Literature on the real estate sector identifies the real estate developer as a pivotal agent in the

deveIo prnent process:

The developer is like an impresario. He is a cataiyst, the man in the middle who creates nothing himself, maybe

has a vague vision, and causes others to create things. His raw material is land and his aim is to take land and

improve it with bricks and mortar so that it becornes more useful to somebody else and thus more valuabte to himn

(Mamott, 1967, p. 24).

'In fact, of the groups invoived in urban deveiopment, developers, since they are lead agents in this process, are

the most important" (Beauregard, 1989, p. 262).

Thr property developer, not the planner or the architect ... is primariiy responsible for the cunent incarnation of

the western cRy" (Sudjic, 1992, p. 34).

Marriott (1967) was one of the first authon to emphasize the role of the developer in the real estate

development process. lnstead of focusing on the demand side or on abstract forces that shape

development of the built environment, he focuses on the developer, the provider of real estate

properties, as the key agent in the development process. The focus of the politi i l economy approach

on the importance of the supply side in real estate development is at the abstract level, reducing agents

to objects that are manipulated by structural forces (Harvey, 1985). However, some agents are

powerful enough to influence the production of the buiit environment (Logan and Molotch, 1 987: Feagin

and Parker, 1990; Wilson, 1991) and, therefore, real estate cbmpanies should receive attention. In an

interpretation of the 1980s building cycle Beauregard (1 994, p. 730) suggests:

%il of this [the digagement of mal estate ban actMty from a demand-induced base] means that city building is

l e s and les responsive to human need and more and more driven by entrepreneurial fervor".

Necessav components in the framework of capital switching are the facilitators, the agents who

engage in capital switching practices, and who have a significant role in shaping supply. Rather han

scrutinizing structural factors as abstract forces, the recognition of agents as being the medium for the

reproduction of structure is essential. Macroeconomic and political events create the conditions and set

the stage for building cycles, but agents are the catalysts that take advantage of these conditions to

mold place-and time-specific products (Mamott, 1967; Lorimer, 1978; Feagin and Parker, 1990).

Structural and agent-based approaches are complementary interpretations, since interactions between

economic conditions and agents' calculations explain the production of built space (Pryke, 1994a). As

suggested by Healey and Banett (1990, p. 90) '. . . extemal pressures are reflected and affected by the

way individual agents determine their strategies and conduct their relationships as they deal with

specific projects and issues, and as they consider their future stream of activiiies". In addition, agents

establish and nourish channels of capital flows. These channels will remain intact, particularly if a

critical threshold is surpassed, and they will attract capital for fumer investment (Edgington, 1 995;

Lindahl, 1997).

One of the major agents in the real estate development process is the entrepreneur or the

developer that initiates and coordinates the development process. The developer is considered not

only a passive actor in the real estate development process, but also a proactive agent who makes

things happen (Mamott, 1967; Chamberlain, 1972; Logan and Molotch, 1987; Haila, 1991). For

example, according to Sudjic (1 992) and Fainstein (1 994), Olympia 8 York Developments, the largest

Canadian-based real estate Company in the late 1980s, was a major cataiyst for the development of

the Battery Park City (World Financial Center) in New York and the Canary Wharf project in London.

Other agents, such as local governments, financial institutions, and real estate broken are extremely

important, but the developer embodies the act of development and the developer's practices 'fuse' the

reciprocal relationships between structural conditions and the agency's perceptions (Whitehead, 1987;

Fainstein, 1994; Lindahl, 1997).

This does not mean that the real estate developer is the sole force of speailative development,

but the developer's ability to exploit specifn conditions, such as easy credit and optimism of the funding

institutions, makes the developer the agent who practices and implements development. The

speculative developen are market promoters, coordinaton and stabilizen, and are "integnl and

essential to the workings of the capitalist economy" (Harvey, 1985, p. 68). This position of the

developer as an opportunity hunter is crucial in taking advantage of dierent phases during building

cycles and different cycles across properties and places.

Logan and Molotch (1987) and Haila (1991) have constructed a typology of the real estate

agents involved in the real estate development process. Their typdogy distinguishes between two

'poles' of development agents: casual and structural. The casual developer is a passive player in the

real estate market and the profid helshe receives rests on accidentally owning the land or property at

the right place at the right time. The developer's passiveness is reflected in the fact that the future

building is designed for a specific client. The structural developer, on the other hand, is a pmactive

player who predicts development trends and gambles on predictions. The real estate developer, who

uses mostly bonowed capital to execute development, is not an entirely rational calculating agent;

often decisions are based on guesses and faith in future conditions (Feagin, 1987; Fainstein, 1994;

Haila, 1999a). In some cases, this type of speculative developer even attempts to manipulate the

market for hisher own purpose (Haila, 1991).

Des Rosiers (1984) outlines four major functions perforrned by a developer. First, helshe is a

coordinator who assumes diverse operations such as negotiating land purchase, obtaining planning

permissions, assembling a development team, taking major decisions regarding planning and

construction, and leasing or selling the new property. The second fundion is assessing risk. In a

volatile environment, the complex development process has to be offset by being able to assess the

market. The developer is also a maket 'insider' who has market knowledge. Accurate knowledge,

which is generated through an information network, is pivotal for the developer's power. Finally, the

developer is responsible for the acquisition of development funds from extemal sources (Des Rosiers,

1 984, pp. 599-600).

The behaviour of developen changes according to the phases of the building cycle. Whitehead

(1 987, 1996) suggests four phases in the real estate development cycle: recovery, expansion,

stagnation and collapse. As the cycle progresses from market recovery to collapse, the role of the

developer diminishes and spatiat behaviour changes. At the recovery phase, the developer is the

spatial trailblazer, as opportunities are perceived when there is no clear picture of the future (O'Donnetl,

1989). As the recovery tums into expansion and the market becomes crowded, some developers leave

the specific market to look for 'greener pastures' that offer higher potential pmf i . At the stagnation

phase, the financiers, who strive to salvage their investment, take the reins from the developers

(Whitehead, 1996).

The developer is able to identify opportunities by conceivhg an original project and creative

financing. During real estate uptums, new entrants enter the development business, because secuiing

financing is easier and investors are willing to take greater risks (Ball, 1994). However, 1 is not only

reading the market well that assists developers, but al- the exploitation of oppominities created by

policy incentives (Harvey, 1985; Momson, 1992; Kennedy-Skipton, 1993). For example, in Glasgow,

the concentration of office devekpment in the city centre is the direct resuit of a sequence of office

policies and plans. These plans are essentially centralist and also protectionist policies, whereby major

office developments are to remain in the central area and are not be located outside 1. These policies

reinforce the tendency of the real estate cornpanies to concentrate their interests in the city centre

(Momson, 1992). Moreover, since the 1980s, real estate devekpers have shared with local

govemments the values of enhancing economic performance. Real estate is no longer considered as a

parasitic business and real estate companies have become more invoived in the planning process,

achieving more room for speculative maneuvers (Haila, 1991).

The components discussed in this section (1.2) situate agents, which are considered having an

important role within the structural framework they operate in. This notion is put forward by Wilson

(1 991, p. 41 1):

'Powerful individuals are authos of their own woilds and not simply respondent. in a predetemiined world. Their

actions, however, are influenced by prevailing ideologies, roles, and production of relations. This social

inheritance provides the context within Aich humm actions operate. Local restnicturing influences are therefore

bonded to structural forces".

Building cycles, financing arrangements, and the roles of different levels of the state reflect the major

structural conditions that affect the actions of real estate companies. Building cycles provide the

macroeconomic conditions in which individual real estate companies work. Financing is also a

structural condition as different types of sources and arrangements are possible. All levels of the state

are necessary for the smooth functioning of real estate production. Each component contributes to the

formation of a framework that enables to interpret and explain the development of space. This

framework is sketched in the next section.

1.3 Steps toward a Theory of Office Development The literature reviewed here contains relatively I l e on office development. However, office

development is pait of the wider sphere of real estate development, and theoiy about real estate

development can be used as a base for conceptualking the way office buildings are being produced

and traded. Although the literature on real estate development is impressive in its sweeping

generalizations, it is often diffiiult to relate specific local events to the structures discussed. On the

other hand, there is a great deal of wnting on specific elements of real estate development. In the

following pages I will draw together various arguments found in the literature on real estate

developrnent, and outline a framework for understanding office development through real estate

development. The statements below also contain many insights gained during my research on office

development in Toronto and more broadly in Canada.

The framework constnicted here focuses on fractions of capital identifiable as specific

industries and fims. The real estate sector and especially real estate developers are pivotal in this

framework. However, the role of other industries or types of fimis is also extremely important. Also, the

framework never strays from the structural conditions in which real estate developers and other

participants in office development ad. In this framework, two major aspects of real estate development

are discussed: the flow of investrnents within real estate capital and the flow between real estate capital

and other secton and industries. Conceptualizations on the logic of real estate capital is derived from

the work of Harvey on circuits of capital, and critique raised by Beauregard (1 991, 1994), Feagin (1 987,

1988), and Fainstein (1994), and what Haila (1 991) defines as the 'intrinsic dynamic' of the real estate

sector. In addition, the frarnework suggested below acknowledges the two-way flow of capital between

real estate capital and other kinds of capital. Real estate draws capital, but at the same time explores

extemal niches for investment. An essential part of a theory of office development is the consideration

of the role of the state and the importance of local conditions for understanding office development.

Since this aspect was discussed in detail in section 1.2.3, no further statements are included here.

1.3.1 The intrinsic dynamic of real estate capital

Before engaging in the discussion of investment flows within real estate capital it is necessary to define

what 'real estate capital' is. Paraphrasing Harvey (1 985), real estate is fixed capital invested in the buitt

environment. Real estate capital is stored in land, in existing improvements to land (built structures) or

potential improvements (land use regulations). In addition, real estate capital is accumulated by real

estate companies, which through the process of development produce development profi.

Development profi reflects the diierence between the costs of producing a structure and its value after

completion. Another type of profi (or los) is based on the market value of the real estate company in

the stock market. As a resutt, real estate capital is both property and Company specific.

Following Haila's argument that the real estate sector possesses an intrinsic dynamic (1 991).

f i e statements that relate real estate capital to the economic conditions are suggested. First, the

prerequisite for real astate development is fund availabilii (not necessarily demand); real estate

development is a highiy leveraged (especially long-terni) business and sizeable amounts of capital in

the form of either eguity or debt are sought constantiy (Des Rosiers 1984). Second, real estate

cornpetes for financing in the general capital market (Leitner, 1994). lnvestment in real estate is one of

several channels of capital investment and it has to compete with these channels, such as stocks and

bonds (other than stocks and bonds of real estate cornpanies). This pattern was obsenred recently in

Canada. Soanng cash flows and profis of real estate companies were not reflected in their stock

prices, which have remained stagnant or have continued to decline. One expknation for this anomaly

is the competition of real estate with other sectors of the economy. The flow of capital into intemet-

related companies in the late 1990s made little capital available for investment in real estate

companies. even though they were trading well below their asset vslues. Third, real estate investment

has to obey requirements set by financial markets. The dependence on extemal financial sources

compels real estate companies (those of them who raise capital through capital markets) to comply

with stipulations set by financial ifitermediaries, such as financial institutions, rating agencies, and

financial analysts. Fourth, real estate cornpanies tend to scan and monitor the financial market in

general, and the real estate market in particular, on a regular basis, and rnove capital from low yielding

products and places to higher yielding products and locations (Leitner, 1994). Among publicly-traded

real estate companies, which are under the continual scrutiny of their shareholders, investment

switching is a cornmon practice, since shareholders often look at short-terni performance. Thus, real

estate companies, in addition to developing new properties, tend to trade in existing assets. Flh, real

estate capital is not entirely flexible. Real estate investment involves sizable investment in immovable

assets; to harvest maximum capital gains, capital has to 'incubate' in a specific place for some time. To

maximize gains accruing from economies of scale, large real estate companies, although having

spatially diverse operation;, have a limited number of locations in which they operate. The geographic

scope of small companies is even more limited; they are highly concentrated in 'niche' markets taking

advantage of knowing the local business arena and the political terrain.

1.3.2 The Yhree dimensions of capital switching'

Three major considerations guide real estate companies in their capital switching strategies in order to

achieve maximum rental Stream and capital appreciation or to obtain development gain (the difference

between the cost to erect a property and its market value on completion). I refer to these

considerations as the Wree dimensions of capital switching'. Oppoilunities within each dimension of

switch ing are punued constantly and simultaneously as real estate companies reanange their

investments by mode of operation, type of propeity, and location. First, real estate cornpanies have to

detenine the mode of operation: that is, either the acquisition or disposition (trade) of existing

properties or the production of new propeities. Second, the twe of ~ r o ~ e r t y has to be considered.

Within the reai estate sector, capital is able to rotate between different property types. A cornmon

distinction is made between residentiaf and commercial properties. Another distinction is anchored in

the difference between types of commercial real estate properties. Location is the third dimension. A

basic feature of the real estate market is its spatial segmentation (Logan, 1993; Blyson, 1997). Real

estate companies operate at different spatial scales, and consequently may posses different

motivations for engagement in the property developrnent pracess. Thus, optimization of capital gains in

the real estate business involves 'spatial literacy'.

Deveto~ment and acquisition: Complementarv ~a ths

In the introduction of this dissertation, a distinction between developers and ownershnvestors of office

buildings was made. In addition to developers and ownerslinvestors (actual developers and buyers and

sellers of office buildings), developers can be further disaggregated. In the literature on the real estate

sector, the classification of developers into two distinct groups is based on the time horizon of their

development projects. There are the 'trading developers' who build, lease and seIl schemes for

development profi (short-term developers), and 'property investment companies', who build schemes

in order to retain thern (long-ten developen) and who achieve profi through capital appreciation and

rental incorne (O'Malley, 1989; Momson, 1992).

Real estate companies that are entrepreneurhl in their early phases tend to depend on either

extemal capital (debt or equity) or proceeds from previous developments (retained eamings) to finance

developments andfor acquisitions. The main goal of the real estate Company is to erect a structure and

obtain the development gain in order to use this capital for new ventures. This creates an accumulation

effect. which fuels the continuous production of real estate assets. Each successful development

enables the commencement of successive projects. and allows the company to engage in larger

projects in multiple locations. Typically, this group of developen does not have enough capital to hold

these assets for a long period; therefore, these projects are sold after completion to their respective

tenants or to other investors. On the other hand, real estate companies with the backing of large

corporations are able to pursue larger scale developments and retain the ownership of the pmpeiües

they develop.

Nonetheless, the distinction between two modes of operation, development and acquisition,

has significant implications for the conceptualization of the real estate sector. Drawing on Manist

thinking and using the concepts of 'surplus value' and 'ckculation of capital', a distinction between

development and acquisition of real estate assets is punued. Surplus value, according to Harvey

(1973), "is that part of the total value of production which is left over after constant capital (which

includes the means of production, raw materials and instruments for labour) and variable capital (labour

power) have been accounted for" (p. 224). The production of a new property invohres three major

components that may increase or decrease the value of a property. Fint, the traditional surplus value

embodied in a building is created through labour, either labouren invoived in the construction process

or other professionals, such as architects, engineen, plannen and consultants. Second, negotiation

gains, such as re-zoning or increasing denstty, are obtained through bargaining with the local

govemment. Finally, market gains (or losses), which involve the appreciation (or depreciation) of the

market value of buildings over time. These three components reflect the development profit.

Retained profits from each development enable the developer to continue in the process of

development and acquisition and, consequently, to accumulate capital. In addition, if the property is

retained as an 'incorne-producing' property, the developer is able to extract rents on a regular basis.

On the other hand, acquisition is more likely to create a different kind of value, 'exchange value'.

Harvey (1982) argues that capital exists as a commodity fom when it is frozen in a finished product.

But since capital is a 'value in motion', it must be continuously transfoned into money capital. The

difference between market prices at different points in time creates the 'exchange value'. This is

attributed to appreciation in value over time, often a result of extemal-to-the-property conditions, such

as inflation and escalating rental rates (rather than direct capital investment executed by the property

owner).

The developrnent and the acquisition/dispositÎon of real estate properties are two sides of the

same coin; real estate companies execute both strategies as they restructure their holdings. In generai,

during uptums of the building cycle, cornpanies prefer development over acquisition. For example, in

the office market, as demand for space rises, vacancy rates diminish and rental rates escalate. At the

same time, the rate of transactions in existing office properties is minimal. Consequently, development

is pursued. As the market hits recession, the extent of development is reduced and during severe

rccessions development is almost abandoned. Many real estate companies and ownen of properties

expenence financial diffïnuloes as vacancy rates soar and rental rates plunge. As a result, these

companies are not able to service theif debt. Hence, selected pmperties are put on the market for sale,

and acquisition/disposition becornes the dominant practice in the office sector.

Product selection: The arowina s~ecialization within the real estate sector

Properties that are developed or acquired by an organization for the purpose of its own use are usually

considered stable and outside capital switching practices. However, exchange-value properties a n

acquired or developed for the purpose of generating an income strearn thmugh the collection of rent;

real estate companies hold these propeities for income-producing purposes. lntemal characteristics of

income-producing properties determine their rnaiket value and attainable rental rates. Generally, newer

buildings command higher rents than older buildings; older buildings need major capital investments to

bring them to the rental levels of the newer buildings. Large-scale projects are relatively scarce

commodities, attracting premier tenants and commanding high rents. Therefore, they are considered

lucrative long-terni investrnents. On the other hand, smaller buildings are considered to be

opportunities for a quick profit. Since there are more small properties available than larger ones.

smaller properties are easier to trade and are regarded as short-term investments.

, Real estate companies tend to rotate capital within their portfolios by upgrading their holdings.

This practice involves the construction of new buildings and shifting tenants from their old prernises to

the newer buildings. Some office space users retain long-ten relationships with their space providers

(the real estate companies). These close relationships enable real estate developers to build a new

building knowing that they will be able to convince tenants to move to the new development. The

shuffling of tenants is either a result of the tenant's growing space needs that cannot be

accommodated within their old office premises or a resuit of inducements made by the developer.

These practices enable real estate companies to retain development gains and at the same time

increase the rental stream, since newer buildings command higher rents than older ones. In addition,

real estate companies prefer to own highquality properties. The highest quality properties in the office-

building sector are class 'A' buildings. Over the long run, class-A office buildings experience lower

vacancy rates, and are therefore more resistant to slumps in rental income than lower quality buildings.

Hence, these high-quality properties are either retained through developrnent or acquired.

Within the real estate sector, capital is able to rotate between different property categories. The

most common distinction is made between residential and commercial properties. Residential

properties include land development and different kinds of housing, such as single detached houses,

apartment buildings or condominiums. Industrial buildings, shopping centres, hotels and office buildings

are the prime categories within the commercial sub-sector. Capital is often shifted to commercial

development since it is considered more lucrative by virtue of dealing with corporate tenants rather

than individual renters. In addition, corporate tenants are not subject to rent control regulation (Feagin

and Parker, 1990). Developers who acquire the expertise, capital and ties to local 'power centres'

(politicai and business), are able to tackle more complex land uses, such as major shopping centres

and multi use developments. Furthemiore, as a result of concentration and the creation of large-scale

conglomerates, the average scale of development has increased significantty (Knox, 1993). Some

large-scale projects acquire distinctive characteristics that make them unique and prestigious, and the

scarcity of these types of properües inflates their values, making them highly desirable among real

estate companies.

Location

The differences between places govem the financial performance of seemingly similar real estate

assets. At the national scale, real estate companies maintain their spatial presence in selected cities

(markets) across a country by maintaining a continued presence. They use regional offices, which

anchor their presence, and nourish alliances with locally influential agents. On the other hand, local real

estate companies are likely to be spatially conservative, having a higher level of dependence on weli-

defined territories. For small real estate companies, 'local dependence', resulting from the relative

spatial immobility of social relations (Cox and Mair, 1988) is far more important than for large

companies. The limited operational territory of small companies is also a result of limited equity and a

finite leverage capacrty (Bryson, 1997; Lizieri et al., 2000). This is specially the case with modem office

buildings; the high cost and the complexity of large-scale office buildings (necessw for parking

structures, expensive electrical, plumbing, mechanical and security systems) usually limit these

buildings to the core of large urban areas. The focus of large real estate companies on downtown office

concentrations in large rnetropolitan areas is further enhanced by the availability of data on these

markets in relation to smaller cities or suburban areas (Lizieri et al., 2000). Only the well-financed and

well-established developers can undertake these types of projects. These factors segment the spatial

reach of real estate capital.

The renowned real estate mantra 'location, location, location' appears to play a primary role

when considenng capital switching. A basic feature of the real estate sector is its spatial segmentation

(Logan, 1993; Bryson, 1997). Real estate companies operate at different spatial scales and

consequently may posses different motivations for engagement in the property development process.

Space is not uniforni; different places embody diverse characteristh, such as economic structure and

employment growth, which are crucial to the functioning of the real estate industry. The differentiation

between places govems the financial performance of seemingly similar real estate assets, thus spatial

Iiteracy is crucial.

At the intra-rnetropolitan level a clear distinction emerges between the urban core and the

periphery (Hughes et al., 1992; Archer and Smith, 1993; Hanink, 1996, 1997). The urban core is the

densest area within the metropolitan realm in ternis of existing real estate properties per land area. The

intemal advantages of the core, such as high accessibiliîy and agglomeration, make it attractive to

selected types of activities. As a result of demand and the scarcity of land, land values in the core tend

to be high. To make economic sense, core areas necessitate intensive, large-scale, and technically

complex development (usually invohring redevelopment), which is also the most capital consuming

development. Only real estate companies with substantial resources are able to develop or acquire

properties in this area. Land values in suburban locations, on greenfield sites, tend to be lower and

therefore development is less dense, smaller in scale, and less complex. Suburban development is

less capital consuming than core development (Ball, 1996). ln this suburban arena, the participation of

developers with fewer resources is feasible.

A crucial factor that affects the ability of real estate companies ta develop office buildings in the

built environment is the extent of extemalities invoived in the developrnent process. There is a

continuum of extemalities which ranges from development on greenfield sites to redevelopment of the

existing urban fabric. In inner cities, especially in downtown areas, land ownership is fragmented

among several owners, and in order to erect a medium to large-scale office building land assembly is

necessary. Development adjacent to other properties may result in conflicting interests with other

owners. Redevelopment in an existing urban fabric rnay antagonize to public interests, such as

preservation of historic sites. Also, redevelopment in an existing fabric, in which limitations on the

transportation capacity are conspicuous, has an immediate impact on traffic. Finally, negotiations are

necessary and take long tirne. Legal advice is usually necessary. All this results in expensive projects.

In Canada, inner cities tend to introduce soma restrictions on redevelopment and the public outcry in

'sensitive' areas may delay redevelopment. The opposite situation prevails in the case of greenfield

development. Suburban greenfield sites present the least possible extemalities. The developer of an

office building usually develops on a site which is situated at a considerable distance from potentially

conflicting uses, such as residential neighborhoods. In addition, the developer might own a large parce1

of land on which helshe erects a building. In this way, the dependence on other land owners is

minimized. In Canada, the negotiation process with suburban municipalities is less complex than with

inner cities. Suburban developers are embedded in the municipaliies in which they operate; they are

part of the community and well recognized as contributors to the success of these localities.

1.3.3 Reciprocal relations: Real estate and other capitals

Haivey's arguments that capital switches between the primary and the secondary circuits provide

important insights into the practices of fractions of capital. The production of real estate capital is

possible through two major processes. First, real estate developen with minimal initial capital

(entrepreneurial developen) use retained eamings combined with small leverage to punue real estate

development. This type of development involves the construction of rektively small properties, in which

the developers usually do not retain ownenhip interest. They use their labour qualifications (vision and

expertise) to accumulate capital. The second type of real estate capital is produced through the direct

involvement of financial, industrial or mercantile capitals. This condition results in a real estate

Company that is backed by large capital (financial, industrial, or mercantile). The backing of extemal

capital facilitates further leverage and enables much iarger developments.

Although it is often difficult to document and determine the sources of capital used for real

estate development, obseivations on the practices of Canadian real estate companies provide

evidence for the invohrernent of different fractions of capital in real astate development. The history of

the real estate sector in Canada shows that finance, industrial and mercantile capitals were stimulators

and financiers of real estate development at various times. All these capitals used leverage to finance

real estate development; the extent of these capitals' invohrernent in real estate is difficult to measure,

but it would be reasonable to suggest that without initial capital onginating in the financial, industrial

and mercantile spheres, subsequent leverage would not have been possible.

In his formulations on circuits of capital, Harvey argues that investment in the built environment

that preceded each of the global crises of the 1930s and the 1970s was as a kind of lastditch hope for

finding productive uses for rapidly overaccumulating capital" (1985, p. 20). For Harvey, investment in

the built environment is a one-way flow of capital. Fainstein (1 994) criticizes this notion of circuits. She

argues that Hanrey's 'use of the tenn 'circuit' indicates that once capital moves into this realm [real

estate] it will stay there" (p. 222). But, capital invested in real estate assets is not 'locked' in, rather it is

stored in these assets and it can be used to generate investment in other sectors. Since the idea of

capital switching between the primary and secondary circuits failed to produce 'hard' evidence in the

short run (Feagin, 1987; Beauregard, 1991, 1994), 1 is suggested that the behaviour of real estate

does not counter the movements in other parts of the economy, rather patterns of real estate

investment directly correspond to situations in the economy in general.

Real estate properties c m be used as collateral for bormwing and since the capital invested in

these properties is mostly bonowed, real estate properties are extremely leveraged instruments. This

leverage can be fumer extended to investments in other secton of the economy. Real estate

companies bonow large sums of capital for development, and are able to establish multiple lines of

credit that provide them large leverage. They are able to invest in secton extemal to real estate by

using leverage on top of leverage. Bonowing money is made possible based on the assets of real

estate companies that most of their cost was financed through debt. This leverage exemplifies what

Harvey calls 'fictitious capital', capital that is financed through credit and debt (Harvey, 1982). As a

result, Harvey considen real estate as an absorbent rather than a generator of capital. Fainstein

(19941, on the other hand, argues that real estate development creates value. The increase in land

value resulting from development, changes unproductive spaces into productive ones, hence

development is not fictitious. These two contradictory approaches can be reconciled. Although mal

estate capital is produced through debt instruments, the final outcome is not fictitious since it facilitates

the continuous process of production. This juncture with 'real' production may resuft in some real estate

companies switching some of their capital into the 'productive' secton of the economy.

Often large real estate companies merge their real estate capital with investments in other

sectors and the distinction between these types of capital is bluned. In these instances loans obtained

by a real estate company may not be assigned to specific purposes but the general purposes punued

by the real estate company. As companies grow in size bey are able to obtain larger loans which may

be directed to various purposes; this allows them to diversify into fields not related to real estate. These

financing practices result in capital crossing the 'boundaries' of real estate capital. This move is

facilitated since capital is considered as a pure financial asset (Harvey, 1982, 1985; Haila, 1988, 1990).

Urban land has been increasingly treated as pure financial asset; this means that instead of focusing

on its use value, developers and owners of real estate assets treat it as another financial asset that can

be bought and sold according to its market value (Harvey, 1985). As a financial asset, real estate

capital does not have to cling to real estate assets, but can explore other alternatives. This feature of

tradability may result in flipping capital from primary to secondary circuit and vice versa. These

practices are related to temporal position of real estate capital. During recession, real estate companies

prefer to invest in non-real estate assets. to hedge against negative affects experienced by the real

estate sector.

The increasing embeddeness of real estate within other sectors of the economy has facilitated

the conditions for real estate capital to seek the most efficient niches within and outside its domain.

These conditions necessitate complex calculations that have to be considered by real estate

companies. One set of cakulations involves situating investrnent within the 'three dimensions of capital

switching'. Figuring what is the best available mix of considerations is a continuous task perfomed by

real estate companies. Second. capital is switching back and forth to and from real estate. Fractions of

capital that are not real estate related engage in investrnent in real estate and occasionally, real estate

capital is seeking outlets outside its 'traditional' scope. Several aspects of these complex calculations

are addressed in this dissertation.

1.4 A Provisional Framework In this chapter, I have attempted to reanange supply-side components as shaping the production of

real estate properties into an analytical framework. This type of analysis draws on combining structural

requirements and actions performed by prominent agents. A number of elements are emphasized in

this framework. First, the uneven surface of structural conditions, which is a fundamental requirement

for the reproduction of the capitalist system, is responsible for variabilii in the development of real

estate properties. Second, this uneven surface is mediated by institutional intervention and public

arrangements perfomed by the various layers of the state. The state is an imperative elernent in this

system. Finally, the vehicle for the implementation of the development process, the agent that cames

out this endeavour, is the private real estate Company.

This chapter clarifies how the structural conditions of real estate deveiopment are reflected in

the daily operations and practices of real estate companies. The real estate company translates

various processes and signals into concrete buiit products. This type of compnay is an investment

channel that gathen information and expertise to deploy capital in real estate in selected products and

in selected locations. The focus on the real estate company and its operational procedures enables the

integration of a conceptual process into concrete manifestations and back to abstract levels.

CHAPTER TWO

RESEARCHING OFFICE DEVELOPMENT IN TORONTO: CONTEXT,

APPROACH, METHODS, AND DATA

This chapter has three components. First, as asserted in the previous chapter' real estate development

is highly dependent on specifii urban settngs. Therefore, the conditions and the specific context for

office development in Toronto during the last fiie decades are outlined. The second section presents

the research approach and methodology chosen. Research procedures rely strongly on 'realist' method

and techniques. The last section disuisses data sources and data collection.

2.1 Context: The Conditions for Office Development in Toronto Toronto, as Canada's largest metropolitan area and its foremost business centre, presents an excellent

opportunity for the study of office development. The size and the cornplexity of Toronto's urban area

and the generally high rates of population and employrnent growth prevailing for the last f i e decades

have provided ample scope for divenity with respect to office development. These features of growth

were complemented by institutional arrangements and planning interventions that have influenced

development in the Toronto metropolitan area since 1950 (Filion, 2000). Office development has been

a major component of growth in the Toronto metropolitan area. Nevertheless, office development was

not uniform across the urban region, as some districts were much more sought out than othen.

In order to situate office development in the Toronto context, several important features of the

urban region have to be described. First, it should be stated that the Toronto area grew strongly in the

last fifty yean. Secondly, it should be pointed out that the Toronto urban area is politically fragrnented

and that planning and urban development have taken place in a politically fragmented region with

particular socio-political cuitures. Finally, as Canada's most important business centre, Toronto has

experienced high rates of employment growth in a variety of activiiies that are office space usen.

The Toronto urban area in this study is the Toronto Census Metropolitan Area (CMA) as

defined by Statistics Canada. The Toronto CMA includes the former Metropolitan Toronto (as of

January 1998, the City of Toronto) and 21 local or 'area' municipalities sunounding Metropolitan

Toronto (Figure 2.1). Akhough a more recent definition of the urban area includes a larger territory,

Greater Toronto Area (GTA), I use the CMA, since most office development in the Toronto area has

been limited to the Census Metropolitan Area.

2.1.1 Population and employment growth

Growth, as one of the prime factors to trigger and sustain urban development, has been one of

Toronto's main features. When the municipality of Metropolitan Toronto (commonly refened to as

Metro) was created in 1953, the population of the area was approximately 1.2 million, slightly more

than half of which were living in the City of Toronto. The boundaries of the Metropolitan municipality

enclosed 622 square kilometers, essentially coinciding with the 1951 boundaries of the Census

Metropolitan Area (CMA). Unlike the f ied boundaries of Metropolitan Toronto, the CMA boundaries

were moved outward over time to encompass the rapid growth and geographic spread of Toronto's

population. In the early 1990s, the CMA boundaries encompassed several sunounding 'regional' and

'area' or local municipalities beyond the Metro boundaries: arnong others Markhm and Richmond Hill

in York Region, Mississauga and Brampton in Peel Region, Oakville in Halton Region and Pickering in

Durham Region (Figure 2.1).

By 1991, the CMA boundaries contained 5,580 square kilometers and 3.9 million people. A

wider definition of the Toronto region, which includes the former Metropolitan Toronto and additional

four regional municipalities, was adopted in the 1990s. The so-called Greater Toronto Area (GTA)

encompasses a larger territory than the CMA boundaries and had a population of 4.2 million in 1991. In

1996, the CMA had a population of 4.4 million and the GTA had a population of 4.7 million. Pnor to

1976 the Toronto CMA was the second-largest metropolitan area in Canada after Montreal. Since the

rnid-1970s, Toronto has become the largest CMA in Canada. Over the last four decades, most of the

population growth has occuned outside the City of Toronto, fint in suburban municipalities within

Metropolitan Toronto and then in the outer or CMA suburbs. Over the last quarter century most of

population growth was in the four regional municipalities sunounding Metropolitan Toronto (Frisken et

ai., 1997).

Parailel to population growth, empIoyment has expanded considerably between 1951 and

1991 from about 527,000 to 2 million jobs. While job growth occuned in al1 three parts of the CMA (the

City of Toronto, Metro subuhs, and outer suburbs), it was more vigorous outside than inside Metro,

resulting in considerable employment deconcentration. For example, in spite of absolute increase in

employment, the share of the City of Toronto in al1 CMA jobs declined sharply from 48 percent to 31

percent between 1971 and 1991; the share of jobs located in the outer suburbs more than doubled,

from 17 percent to 35.5 percent (Gad. 1979; Frisken et al.. 1997). However, employrnent growth has

not been as smooth as population growth. A number of recessions in the late 1950s, mid-1970s, and

early 1980s were accompanied by stagnation or decline in employrnent. A protracted recession in the

early 1990s led to very severe losses of employment. with a recovery visible only in the late 1990s.

Figure 2.1 : Toronto Census Metroplitan A m

In total, substantial population and employment growth since 1951 have set Toronto apart from

many other cities in North America and Europe. For the Toronto area as a whole the challenge has

been to manage growih rather than to attract it. Concerted efforts by the metropolitan and regional

govemments to attract population or employment were largely absent over most of the last f i e

decades.

2.1.2 Municipal organization

Wiihin the Toronto area three tien of govemment manage services and municipal issues. First, the

Province of Ontario has a crucial role in municipal Me. The Province has the power to change and

restructure local municipalities, and it has used this power repeatedly to amalgamate a number of

municipalities into larger entities. The amalgamation of the six municipalities foning Metropolitan

Toronto into the new City of Toronto in 1998 is the most recent manifestation of this power. The Ontario

Planning Act sets out the conditions for uhan development and stipulates provincial govemment

'approval' of 'official plans'. Through the Ontario Municipal Board (OMB), which is the highest tribunal

to rule on planning related decisions, municipalities are subject to extensive developrnent review. In

addition, the province has an important role in transportation issues. For example, in the case of

Toronto, it has had, until recently, the overall responsibility for the major expressways, for the

commuter rail and bus senrice (known as the GO system), and it played a significant role in subsidizing

both capital investment and the operations of Toronto's transit system. However, since 1998, the

Province has ceased ta fund transit and some expressways in the Toronto area (Filion, 2000).

Toronto's reputation as an urban success story is often finked to the formation of the

Municipality of Metropolitan Toronto in 1953. This regional rnunicipality was a two-tier federation of 13

(later six) municipalities, partially govemed by an 'upper tier' rnetropolitan council. Metro's original

mandate was to provide physical infrastructure (water supply, trunk sewer facilities, arterial roads) to

suburban districts experiencing rapid growth, and to relieve the central city, the City of Toronto, of its

housing problems. Later it resurned responsibility for policing, public school finance, and social

services. Metro's responsibility for sorne expressways, roads, and transit, together with its power to

redistribute taxes, were crucial for office developrnent. Metro was in charge of managing the arterial

roads, certain expressways, and it also supplied, through the Toronto Transl Commission, an

integrated system of subway, bus and streetcar services (Scott, 1980; Frisken et al., 1997; Filion,

2000). Although the local municipalities collected taxes, the needs of Metro were levied against them,

and debenture financing for Metro fiself and al1 the lower-tier municipalities was placed in Metro hands

(Lemon, 1985). At the local level, the 13 (later six) metropolitan rnunkipalities controlled the local

roads, provided senrices that were not provided by Metro, and formulated their own land use plans.

Outside Metropolitan Toronto, four regional govemments (Durham, York, Peel and Halton)

were established in the 1970s. These govemments were given limited responsibilities in comparison to

Metro. The antagonism of outer suburbs towards al1 foms of metropolitan govemment caused the

provincial govemment to shy away from a new metropolitan administration (Filion, 2000). Within these

regional governrnents, local municipalities function in relative independence of each other, united only

as members of two-tier regional structures, in which the upper-tier regional councils have relatively few

powers de jure (Frisken et al., 1997). De facto powers are even smaller, since regional councils are

strongly influenced by the coalitions of councillors and mayon elected at the level of the 'area' or lower

level rnunicipalities.

2.1 -3 The planning system

In Ontario, each municipality has to prepare an official plan. An official plan is a public statement which

defines basic goals, objectives and directions for the physical dwelopment of a municipality. It is

prepared and 'adopted' by the municipality and gets its final 'approval' from the Province. In the case of

two-tier municipal govemments, the Ontario Planning Act stipulates that the plans of the Municipality of

Metropolitan Toronto and the regional municipalities take precedent over the plans of the 'area' or

lower level rnunicipalities. Subdivision approval at the regional level and land use controls (zoning

bylaws) at the lower level are other features of the planning system under the Ontario Planning Act.

These stipulations reflect notions of the rational-comprehensive planning model. In planning practice,

however, there is very lime topdown planning. In most cases, the lower level municipalities had official

plans in place before the formation of the two-tier system of municipal govemment. Also, because of

the considerable weight of the lower level municipalities, regional plans can only be made with the

cooperation of these lower level municipalities. As Lemon (1 996, p. 252,263-66) has pointed out, large

scale or comprehensive planning has been largely rejected in Ontario in general, and in Toronto in

particular. This does not, however, negate a very strong role of the state, both provincial and municipal,

in urban matten. Lemon (1996, p. 263) characterizes this strong public involvement in urban affain as

'management' rather than planning.

Apart from passing enabling legislation in the form of the Planning Act, the Province of Ontario

has a critical role in the Ontario planning system. Official plans of area (lower level) and regional

rnunicipalities must be submitted to the provincial Ministry of Municipal Affairs and Housing for final

approval. Although the Ministry interferes to some extent in 'planning', the more frequent and more

important interference comes through the Ontario Municipal Board (OMB). This body of appointed

'judges' is a quasi-judicial provincial agency with various responsibilities for oveneeing municipal

affairs. The OMB is the final tribunal on planning issues, and it can overtum decisions made by

rnunicipalities. (OMB nilings could be appealed to the Ontario Cabinet until a revision of the Planning

Act in 1 983.)

2.1.4 Taxation

One of the fundamentai powers of municipalities is their ability to collect property taxes. These taxes

are used to provide a wide range of municipal services. From the beginning, Metropolitan Toronto

raised rnoney for operathig costs and debt repayment by levying charges on mernber municipalities

based on the size of their assessments. This way, assessrnent-rich municipalities paid more per capita

than poorer municipalities. The redistribution of property tax helped to prevent inter-municipal

disparities in the quality of services and allowed the poorer municipalities to have a higher standard of

local services than their own tax base would have made possible. The City of Toronto had the highest

total assessment per capita, and it has also experienced an increase in that assessment relative to

other municipalities. This meant that the City of Toronto had always paid a larger share (relative to

population) of Metro costs than any other Metro municipality. This issue has contributed to a debate

about the redistribution of property taxes within Metro. Because of the financial strength of the City of

Toronto, based on its substantial business district, the City of Toronto has drawn a much larger share

of its revenues frorn taxes on non-residential properties than other Metro municipalities. The high non-

residential tax base allowed the City of Toronto to spend more on local services than other Metro

municipalities, without taxing residents at a higher rate (Frisken et al., 1997; Todd, 1998). Although

both residents and businesses pay property taxes, residents, not businesses vote, therefore making

local govemments geared toward encouraging more non-residential development as an important

source of tax income.

The rnunicipalities outside of Metropolitan Toronto have stniggled with the same problems that

had been faced by the rapidly growing Metro suburbs in the 1940s and 1950s: high expenditure for

basic infrastructure. Property taxes for residential uses in the municipalities outside Metropolitan

Toronto are, therefore, higher than in the Ctty of Toronto. On the other hand, taxes for industrial and

commercial properties are relatively low in order to attract businesses, and provide a 'balanced'

assessment base. In eariier decades, the stniggle over attracting businesses has largely concemed

industrial enterprises. In the 1980s and 1 %Os, however, competition for the non-residential tax base

has shifted to a considerable degree to office developrnent.

2.1 -5 General development issues

As a resuk of being a high growth region wiai a two-tier govemment, well-estabiished and well-defined

growth coalitions in Toronto were less pronounced than in regions experiencing lower growth and

lacking rnetropolitan govemments. The two-tier govemment (metropolii and local) contributed to the

fragmentation and the weakening of growth coalitions. The role of the Metropolitan govemment in

redistnbuting benefis across the metropolitan area is in contrast to the role of growth coalitions seeking

local development (Logan et al., 1997). Nevertheless, in the Toronto area, various coalitions have

emerged at the local municipality level.

The Metropolitan govemment provided a physical infrastructure for urban expansion. and in its

eariy days it opened up large subuhan tracts for private residential and industrial development. The

City of Toronto got help with housing, especially high-rise public housing that was accommodated in

Metro suburbs. The provincial government supported this policy indirectiy by placing restrictions on

development based on the availability of infrastructure (Frisken et al., 1997).

Over time, Metro's planning goals shifted. Beginning in the 1 9 7 0 ~ ~ more emphasis was placed

on a multinodal urban structure in conjunction with the policies promoted by Metro suburbs and the

City of Toronto. Metro suburbs advocated office decentralization in order to attract more office

development to the suburbs; concunently, the City of Toronto attempted to control and 'deconcentrate'

office development. By the late 1980s, Metropolitan Toronto faced considerable competition for office

development and off ice-based employment from several of the outer CMA municipalities. A major study

was conducted by the Metropolitan Planning Department. and subsequently the 1994 Official Plan for

Metropolitan Toronto relaxed the rules for office location in former industrial areas. This responded to

demand for more convenient accessibility by car and more liberal parking facilities. In the 1990s. the

conflict over commercial developrnent and employrnent locations had shifted to differential business

taxes between Metropolitan Toronto and the outer suburbs. In this case, the various municipal

govemrnents in Metropolitan Toronto combined voices with the Metropolitan Toronto Board of Trade to

urge a reduction in property tax differentials.

The City of Toronto. as the core municipality or central city was clearly prodevelopment until

the late 1960s. It encouraged both high-density residential and commercial development in Toronto's

central area. In this effoit the City was assisted by the Downtown Redevelopment Advisory Council. in

which large downtown employers and land owners played a major role. The rise of the 'reform'

rnovement in the late 1960s and early 1970s. and the election of a 'refon' council in 1972. changed

the development environment. In the 1970s. and especially for a limited period in the mid-1970~~ the

planning agenda of the CRy of Toronto focused on restrictive measures. The Central Area Plan

('adopted' by city council in 1976 and 'approved' by the Ontario Cabinet in 1979) was the strongest

move by the Cty of Toronto to shape the downtown area (see section 7.3.1). This plan attempted to

contain development by reducing densities in the Central Area. Office development was severely

affected by downzoning (Frisken, 1988; Gad, 1999). The emerging planning strategy heM that the

further development of new office space in the Central Area should be limited in relation to the capacity

of transportation facilities that already existed or had been committed pnor to the plan. According to the

plan, growth in future office employment was to be managed by deconcentration and the establishment

of suburban city centres (Frisken, 1988). In the 1990s, the 'downtown' coalition which includes various

large firrns (banks and retailen), media and politically connected law firms, has been organized around

the Toronto Board of Trade. This coalition pushed for the amalgamation of municipalities in

Metropolitan Toronto in order to gain tax reductions (Todd, 1998). However, as will be shown later,

implernentation of restrictive coalitions varied according to economic circumstances. It can be argued

that a coalition of residents' groups and some business interests put emphasis of the quality of growth

rather than stopping growth.

Outside the Cdy of Toronto, distinct alignments between municipal govemments and large-

scale developers were noticeable during the era of rapid expansion in the 1950s. In large-sale

expansion projects, the cooperation of a municipality is essential. In the eady 1950s, one of the leading

entrepreneurs in Canada, E.P. Taylor, commenced the development of the first large-scale suburban

subdivision in Canada in the Don Mills area of Toronto's suburb of North York. In this case the

municipality and developer shared an interest in developrnent and the rnunicipality involvement

became "nothing more than a passive rubber stampn (Sewell, 1993, p. 95).

The development of Downtown North York (later North York City Centre) exemplifies the role

of different levels of govemments as promoten of development. Until the late 1970s, the Metro

Bcrough of North York had no highly visible centre. The extension of the south-north Yonge Street

subway line to Sheppard Avenue and the desire of the municipality to create its own city centre were in

conformity with the deconcentration policy adopted by Metropolitan Toronto (Matthew, 1989;

Municipality of Metropolitan Toronto, 1989). In the initial phases of development in the 1970s, office

development depended heavily on the initiatives of municipal and federal govemments to build and

occupy major office structures. One of the first office buildings in the future North York City Centre was

the North York Board of Education (1970). It was followed by the North York City Hall and the largest

office building in North York at that time, which was occupied by the Department of Public Works of the

Government of Canada. In the 1980s, local developers and developers with vested interests in the

area, became highly invohred in the development of the City Centre and together with North York's

high-profile mayor (Mel Lastman) pushed for development. (A more detailed account of the public and

private agents creating North York's City Centre will be provided in section 7.3.2.)

Outside Metropolitan Toronto, development has been strongly promoted by large private real

estate developers. The case of Mississauga City Centre is an outstanding example. The idea of

developing a city centre in Mississauga was initiated by the largest landowner in Mississauga in the

1960s and 1970s (Lorimer, 1978). Bruce McLaughlin, who had assembled a large land bank, had the

ambition to build the centre of the new Town of Mississauga (a number of municipalities were

combined in 1967 to fom the Town of Mississauga). When McLaughlin appeared before the

Mississauga t o m council to present his plans for the City Centre in 1969, the town council was

extremely supportive. However, with the election of a 'reforrn' council in 1973, Mclaughlin had to wait

until the re-election of a prodevelopment council in 1976 for his plan of the City Centre to be adopted

(a detailed account will follow in section 7.3.3).

Development issues, especially those related to office development, in other municipalities

have been less visible. However, the practice of favouring industrial and commercial development in

order to increase the assessment base seems to have been penrasive over the last couple of decades.

The general liberal zoning for 'industrial areas' is an indication of the attempts to increase the real

estate tax base and revenues.

Growth coalitions are, thus, at work in a selective fashion, and they are time and space specific

as the Toronto urban region experienced different phases of growth promotion and growth

management.

2.1.6 Office users in the Census Metropolitan Area

The time period 1950 to 1990 witnessed an enonnous growth of the kinds of jobs which are housed in

office buildings. All sectors of the economy contributed to the growth of office-based employment. By

the mid-1990s, about one third of al1 employrnent in Metropolitan Toronto was classified as 'office

employment' by Metropolitan Toronto Planning Department (Metropolitan Tomnto Planning

Department, unpublished tables). Several authon, especially Gad (1 985, 1991 a), have commented on

the vast array or great divenity of office space usen.

There is a large number of office establishments in the metropolitan region. In the central part

of the City of Toronto alone there were more than 4.800 establishments in 1971 (Gad, 1979, p. 293)

and in Metropolitan Tomnto there were about 32,000 in 1988 (Gad, 1991a. p. 436). These office

establishments range from very small ones (1-3 employees) to very large ones with several thousand

employees. The size distribution is highly skewed toward smaller establishments. Large establishments

with more than thousand employees are relatively rare and are largely confined to public sector, utility,

and bank and insurance company off ie establishments. Since around 1970, a process of 'back office'

formation has resulted in the spatial fragmentation of the larger head and regional offices (Huang,

1989). There were also signifiint changes in labour force composition, which, together with an

increasing geographic spread of the places of residence of the labour force, led to new kinds of

geographies of office location. Since the 1950s, both female labour force participation and professional-

managenal jobs have increased stmngly (Huang, 1989). These two trends together led to a

considerable increase in the percentage of female managerial-professional employees in the Central

Area (Huang, 1989) and the decentrakation of some offices or parts of offices taking advantage of a

relatively flexible female labour force supply in the outer residential areas (Huang, 1989; Gad, 1991 a,

pp. 43841; Gad and Matthew, 2000).

In Toronto, the processes of central district specialization and suburbanization have created

different types of office clusters (Gad, 1985). Highorder financial services, media, and some business

services (law fimis, accounting and management consuking fimis) remain relatively central, h i l e other

types of office space users have dispened across the metropolitan region. Gad (1 985, 1991a) argues

that there are three kinds of suburban offices: small offices that serve largely localized suburban

markets, offices that exploit the suburban advantage of high accessibility by car (for example,

manufacturing company head and sales offices, engineering consultants), and back offices and similar

offices that take advantage of the flexible female labour force in the suburbs.

Gad suggests that 'the various spatial patterns of industries, establishment size, status,

occupations, and other aspects, such as gender of employees or commuter patterns, combine to

produce quite distinct office nodes in the Toronto area. It is tempting to see an intra-urban set of

regions emergingn (Gad, 1991a. p. 441). Other authors support this notion of a diversity of office nodes

in the Toronto area. Matthew (1992, 1993a, 1993b) argues that within the suburban realm each centre

or concentration has developed a measure of specialization.

2.1.7 The scope for office development

This brief portrait of the post-Worid War II Toronto region indicates the enormous scope for office

development over several decades. Strong growth of Toronto's economy coupled with growing

diversification is reflected in a huge variety of office establishments. Thus, demand for office space of

different kind has been very strong. In the context of a growing urban region, office establishments

have spread across many different types of locations. This spatial spread was supported by a public

growth management system, which provided a wide range of infrastructure for urban development.

However, within this general framework, municipalities with different interests and growth dynamics

provided ample opportunity for different niches of office development. It is quite apparent that municipal

fragmentation and other spatially differentiated conditions made it possible for office developers to

exploit these niche markets.

Finally, it should be pointed out that oppominities for office development are also accornpanied

by constraints. The physical and social conditions for office development Vary greatly. Aithough Toronto

is not an old city, there are substantial areas of nineteenth century development. Redeveloprnent of an

earlier fabric, even if it consists of offices that have already replaced earlier commercial and residential

buildings, has increasingly faced resistance. Traffic generation is resisted too, especially by older elite

and new professional classes in inner city neighborhoods. Extemalities are also highly visible in and

around some of the new 'suburban downtowns'. Replacement of older buildings and the impact of new

developments on surrounding single-family residential neighborhoods have led to many conflicts. In the

outer suburbs, on the other hand, land use conflicts, especially involving office development. are less

frequent. Development in large greenfield industrial or business parks or socalled 'employment areas'

is well isolated; hence, conflicts between residential groups and office development are almost

un known .

2.2 The Research Process and the Use of Realist Method In ternis of approach, that is questions raised, assumptions made, and the broad theoretical

framework, the reseamh presented in this thesis is grounded in the political economy tradition. The

rnethods of research are grounded in the 'realist' framework explicated by a geographer, Andrew Sayer

(1 984). Pratt (1 994) was one of the few researchers to use the realist approach in the analysis of real

estate development. This section outlines why this paiticular approach and this method are appropriate

for research on office development in the time period 1950-2000 in the particular setting of Toronto.

Urban development is well theorized within the political economy approach. This approach

draws attention to structural conditions within capitalist economies and societies. It also draws attention

to the role of the state in urban development. Unless a strictly Marxist structural version is adopted, the

role of the local state in urban development is problematized. Also, the approach perrnb the

investigation of the relationship between structure and agency. The outline of the political economy

approach and its particular relevance and application in this study have been provided in section 1.1.2.

In the following paragraphs, I will briefly outline why realist method is appropriate for this

research project. It is not my intent to review this method, but to outline its basic features and to

demonstrate why it is particularly suitable for research on office development in the case of the Toronto

study.

Realist methodl as developed by Andrew Sayer (Sayer, 1984, 1987; see also Cloke et al.,

1991), is founded on a critical response to posiovism. Sayer rejeds the notion that the workl is made

up of discrete events that can be measured as specific phenomena. Instead, he suggests that it is a

stratified and differentiated worid of complex relationships that need to be 'unpacked'. Realist method

emphasizes exact definitions of concepts. It wams against 'chaotic conception', in which objects are

grouped into categories that have little or no intemal logic or structural interaction. The 'setvice sector'

is mentioned as an example of a 'chaotic conception' (Cloke et al., 1991). Pratt (1994, pp. 207-8)

argues that an industrial estate is a chaotic conception, and as such it is not appropriate to develop an

autonomous theory of industrial estates. Rather, he claims Tt was considered more appropriate to

identify the processes and mechanisms that give nse to the 'eventl of an industrial astate, and to

explain their development in the specific places and times with recourse to the structures of provision

and the contingent conditions pertaining therew.

Chaotic conceptions are visible in research on office development. ûffice development is a

particular component of the 'real estate sectot, which has its own characteristics separate from other

real estate activities. Grouping office development with residential or even retail development resuits in

oversirnplification of office development. For example, office buildings have different usen, location

characteristics and agents invoived than in retail facilities. Also. the common terni 'developer', which is

attached to companies invohred in office development, fails to differentiate between agents that are

involved in devefoprnent and other related functions such as investment and ownership.

A number of dualities govem the realist approach. First, the distinction between necessary

causai powers and contingent conditions is introduced. The notion of contingent conditions argues that

the existence of two objects does not necessarily indicate some kind of relationship between the two

objects. In order to identify causal power a relationship has to be in place. This relationship is the

necessary condition. An example, used by Sayer to illustrate this relationship, is the relation of landlord

and tenant. The existence of one necessarily presupposes the other (Sayer, 1984, p. 82). The

identification of this type of relationship enabies exposing causality because the necessary condition

already exists. The second distinction is between the abstract and the concrete. The realist approach

considers the empirical study of contingent relations as concrete research. Concrete research is

required in order to discover the actual contingent relations under which the causal mechanisms are

triggered. Abstract or theoretical concepts are used to unravel the necessary conditions by abstracting

from concrete objects. According to Sayer, concrete research permits the abstraction of necessary

relations. Embedded in his conception s the notion that the relationship between abstract and concrete

is reciprocal and dynamic, as both interact and modify each other. In the beginning, the

conceptualizations of concrete objects are likely to be superficial, and in order to understand their

diverse determinations they need to be abstracted first. When each of the abstracted aspects has been

exarnined, it is possible to combine the abstractions to form concepts which grasp the concrete nature

of their objects (Sayer, 1984, p. 81). Finally, structure and agency are addressed. The realist approach

considers structure and agency as embedded in the context of necessary and contingent. Structure is

generally identified with We necessary, while agency is the generator of contingent conditions.

However, the causal powen of structures will not always be realized and not al1 contingencies are

simply a matter of human agency (Cloke et al., 1991).

Sayer (1984, pp. 219-28) also distinguishes between 'intensive' and 'extensive' research. In

intensive research the primary questions concem how causal processes work out in a particular case

or a small number of cases. Extensive research is concemed with discovering some of the common

properties of the population as a Mole. In this study, I examine a specific field within the real estate

sector, office development, and the major question is how o f f i i development comes about in the

spatial practices of selected large and medium-sized real estate developen operating in the Toronto

metropolitan area. This is reseanh of contingent relations geared to discover the conditions under

which the causal mechanisms are triggered. The role of agents is investigated by studying their

practices. An investigation of a limited number of cases requires particuhr techniques. These include

qualitative methods, semi-stnictured interviews, and a strong reliance on regular documentation of the

subject matter. These techniques permit the detailed study of the individual finn in its causal context,

and, in tum, this enables the researcher to establish the connections between the necessary and the contingent. Land has a necessary role for the creation of capital gains through the construction of

various structures. However, the creation of capital gains does not occur at al1 tirnes in al1 places, but

rather in particular instances (exemplified by building cycles) and in specific places (sometimes in

downtown and often in suburban settings). This argument is advocated by Fainstein (1 994) suggesting

that in relation to real estate development Virtually al1 values exist in combinations and are increased

or lowered, based on the context in which they are used" (p. 223). Certain causal powen are argued to

exist necessarily by the virtue of the characteristics and fom of the objects that posses them, but it is

contingent whether these causal powen are released or activated. In the case of real estate

development, it depends on numerous factors, such as a particular type of demand, zoning regulations,

access to capital, and a 'spark' of an entrepreneuriai developer, wbether a building materialires in a

certain place.

Extensive research, on the other hand, would deal with office development in a different

manner. It would ask whether there are general characteristics and patterns to be discovered over the

whole population, and adopt techniques, such as large-scale forrnal questionnaire suiveys and

descriptive and inferential statistical analysis, to uncover reguhrities. Evidently, then, in this case

pattern and regularity are possible indicaton of causality. For the purpose of the study of office

development, extensive research is unsuitable for a nurnber of reasons. First, what constitutes a

developer is a fair question, and since a developer assumes a number of roles, the categoiy

'developer' is problematic. Second, there is no formal account of the total population of office

developers. Third, the process of devebpment is complicated because it involves a large number of

different types of agents and hence cannot be separated from contingent conditions. Finally, there are

a few large real estate companies operating as office developers, which are also publicly held.

Extensive research on a small population of two or three-dozen companies does not make rnuch

sense.

However, rnethods and procedures used in extensive research are employed as well. Attempts

are made to use extensive data as much as possible. Building permit data for Canada and b provinces

and data on investment of financial institutions in real estate are used. Also, comprehensive data on

the office building stock in Toronto is used. Some of these extensive sources are analyzed in order to

discover regularities or relationships.

Intensive and extensive procedures differ also in the type of account produced. In intensive

research, the groups to be researched should be such that the members of the group relate to each

other either structurally or causally, thus permitting interpretation of causality through an examination of

actual connections. This is vitally important in the case of the real estate sector, which is highly

heterogeneous. In the case of real estate development, the examination of relations between

developers and financiers and between developers and local municipalities makes it possible to distill

the causal conditions that trigger, facilitate and enhance office development. In extensive research, the

groups employed are taxonornic, i.e. those that share formal attributes, but do not necessarily connect

or interact with each other. The account produced would describe 'representative' generalizations

which lack explanatory possibilities.

However, both research procedures have inherent weaknesses. Extensive research is a

weaker explanatory tool as this type of research lacks sensitivity to detail and it has a limited

explanatory power with regard to the identification of causal mechanisms by stressing general patterns.

The main weakness of intensive research methods is the lack of representativeness. It may, therefore,

be susceptible to the problems of over-extension of concrete research (Cloke et al., 1991). As a result,

both approaches are used in this thesis, although the emphasis is on intensive research.

2.3 Data of lnterest and Data Collection The general question about how office buildings were produced in Toronto over the last half century

requires answen to specific questions and the manhaling of specifk data. The following questions

regarding the agents, the office stock, govemment policies, and financing practices are at the core of

this study:

Who are the agents responsible for office development in the Toronto Census Metropolitan Area,

and what are their spatial practices?

How do agents responsible for office development act within the framework of the 'three

dimensions of capital switching'?

How has Toronto's office stock developed since 1950?

What are the different types of relationships between govemments and developers?

What are the financing practices of real estate developen and what is the role of financial

institutions in office developrnent?

Given the political economy approach, including the theorkation of office development, and the realist

methodology chosen, the data required and the methods of data collection are as follows. Extensive

data on real estate companies and office development is relatively scarce in published form. This type

of information cannot be found in census data or specific annual surveys such as on manufacturing

(Statistics Canada series on Manufacturing Industries of Canada). No cornprehensive industry

directories like the Canada Legal Directory or the Canadian Law List or the National List of Advertisers

are available. Unlike in the case of sorne sectors in the economy, the total size of the real estate sector

is questionable (see section 3.1). Further, it is a highiy cornpetitive sector. This sector indudes

numerous small, privately held companies that do not reveal their real estate holdings or other

business characteristics. As a result. a combination of information sources has to be used to identq

real estate companies involved in office development.

2.3.1 Extensive data

Office develo~ment and office buildinas

Two kinds of data sources are used here: building pemits and office floor-space (Table 2.1). In

Canada. no agency collects data on office buildings or building completions at the national or the

provincial levels. Therefore, I use office building permits as indicator measuring office development at

the national and the provincial levels.

Table 2.1 Type of data available on office building permits and office floor-space

Spatial unit Office building permits Office floor-space (Statistics Canada) (Red estate brokers)

National Value, 1961 -99 (Annual) Not Available (2)

Provincial Value, 1961 -99 (Annual) Not Available

Census Metropoiiîan Available but expensive to obtain Detailed data is available for Toronto (by district for 1964-99,

Area (not used) by individual buildings for 1971, 81,91,99), and for Calgary

(by dirçtrict for 1985-99, by indi iual buildings, for 1988,

1999). Aggregate for other major Canadian CMA's

Municipal Available for certain municiialibjes The same as for CMA's

for recent years (1)

Notes: (1) In some municipaiiies, offibuilding pemits at the municipal level are embedded in commercial building pemits. In the 1990s, these municipalities have disaggregated the commercial cornponent into office, retail and industrial. (2) In the late 1 990s, Royal Le Page has started to compile the national stock of office buildings. Basically, this list includes the six-largest metropditan areas in Canada.

Data on building penits was obtained from Statistics Canada publications that incorporate statistics on

al1 types of building pemits. Specifically, the dollar value of office building penits issued in Canada

and selected provinces for the period 1961-99 are used (Statistics Canada, Building Penits,

Catalogue No. 64-203; for 1998-99. CANSIM Matrix No. 4073). For Calgary, office building data (office

building inventory) was obtained from a report prepared for the City of Calgary, newspapers, and a

commercial real estate brokerage finn (Royal LePage office in Calgary). Comprehensive data on

Toronto's office stock was obtained through the reports of Royal LePage (fonerly, A.E. LePage). This

Company has created a database on Toronto's office buildings. which goes back to the late 1950s.

Royal LePage used to publish annual reports in Toronto's Office Leasing Directory, and also in the

publications Real Estate Market Review, and the Annual Real Estate Suivey. These reports provide

detailed data on the Toronto office inventory by a wide range of spatial units.

Also, I obtained from Royal LePage lists of office buildings for four time cross-sections, namely

1971, 1 981, 1991 and 1999. Data in these lists of individual buildings includes the address of buildings,

the year of construction, and office floor-space in each building. The 1999 list includes also nurnber of

floors in each building. By using this data I was able to reconstruct Toronto's office inventory in four

cross-section years and changes over the decades: l971-8l, 1982-92, 1993-99; these periods of

eleven years correspond approximately to building cycles.

Two problems arise with this type of data: the definitions are vague, for example, what

constitutes office space, and some degree of inconsistency of the measurement of floor-space. Other

data sources were used to venfy the accuracy of the Royal LePage data. For example, several

municipalities have their own databases on office buildings (1 used data from North York and

Mississauga). However, these data sources are themsefves incomplete, because municipalities rnay

include only a sample of the largest office buildings (North York) or do not include buildings exclusively

occupied by the owner or a single tenant (Mississauga). In addition, they often use outside sources,

which rely on surveys by real estate brokers.

Real estate companies

Extensive data on real estate cornpanies and especially on those engaged in office development is

scarce. Statistics Canada produces aggregate statistics on 'real estate operaton and developers'

based on the Standard lndustnal Classification (Statistics Canada, Canadian Standard Industrial

Classification for Companies and Enterprises, 1980, Catalogue No. 12-570E). This category includes a

wide range of cornpanies that are related to real estate. These cornpanies are engaged in:

a land development and construction of residential and non-residential buildings;

acquisition, assembly, subdivision and servicing of land;

ownership and operation of buildings.

Real estate associations provide only general and partial data. One of the prominent real estate

associations, the Canadian lnstitute of Public Real Estate Companies (CIPREC), published annual

reports on its members between 1970 and 1996-7. These reports mainly include the publicly traded

cornpanies, which are also the largest. A major problem with Statistics Canada data and the data of

CIPREC are that they do not differentiate between the types of real estate companies. All real estate

companies, large and small, commercial and residential, developers and traders, are included in the

general category of real estate companies.

Financial institutions and mal estate investment

Real estate assets of financial institutions, mainly banks and life insurance companies, are measured

through mortgages and direct investment in real estate properties. A study by Des Rosiers (1984) is a

rich source for information on mal estate investment by life insurance companies and pension funds in

Canada in the 1950-1 980 period. Aggregate data for this thesis on life insurance companies is attained

from the Canadian Health and Liie Insurance Association. This source breaks down the assets of

insurance companies into their major components and provides historical data. In addition, reports of

the Superintendent on Financial Institutions provide similar data but at the individual Company level.

Finally, more recent annual reports (the second haif of the 1990s) of individual life insurance

companies provide a breakdown of mortgages and real estate investments by product type (residential,

industrial, retail, and office), and occasionally location (city or downtownlsuburbs).

2.3.2 Intensive research

Real estate campanies

No documentation of the history of commercial real estate in Canada as a whole exists at the moment.

Documentation put together for this thesis is based on knowledge gained through intensive research on

the rea! estate sector. Specifically, it is based on a few books published on urban development and

related issues scrutinizing Canadian real estate developers in the 1960s and the 1970s. However, the

more recent boom experienced by the real estate development sector in the 1980s did not trigger

intensive inquiry with the exception of several books on the Reichmann family, the owners of Olympia

& York. Accordingly, additional sources had to be used. These include media files, biographies. and

annual reports of real estate companies. Media files consist of an abundant number of newspaper

clippings primarily from the Globe & Mail, Financial Post, the Toronto Star, and the Mississauga

Business Times, and from trade joumals, such as Canadian Building and BuiMng Managemenf.

Approximately 1500 newspaper items from 1969 to 2000 were used. These items were of unequal

weight. Many were advertisements or simple press releases indicating the start of a building. Others

were features on developers: still othen were on municipal policies conceming office development.

The major articles used are listed in the bibliography under the heading 'Newspaper and Magazine

Articles'. I was able to use an extensive collection of newspaper clippings on urban development

assembled by Professor Gunter Gad, Department of Geography, University of Toronto over the time

period 1969 to 1998. From the middle of 1998 onward my own clipping files have covered office

development in Canada.

A major and valuable source used extensively throughout this research consists of the annual

reports of publicly traded real estate companies. Between 1970 and 1999, the largest real estate

companies in Canada, except Olympia & York, were at some stage of their corporate existence publicly

listed companies. The number of public companies varied over this time pend between ten and

twenty. Although public companies represent a small segment of the total number of real estate

companies in Canada, their signifimce is greater than their number. Publicly listed companies are the

largest in tems of assets, in diversification of the products they deliver, and in their national and

international spatial scope. The largest real estate companies are the 'powerful land-interested acton'

(Feagin, 1982; Feagin and Parker, 1990) and they have more impact on office development than

smaller companies. (Also, almost any information on private companies is limited and difficuit to corne

by. Collecting systematic andlor in-depth data is almost impossible). The annual reports include two

components that are of major significance to this dissertation. First, they provide the real estate

portfolio owned by a specific company, and second, they elaborate on the cornpanies' decisions and

explain their actions and their understanding of the business environment. In total, I examined annual

reports of approximately fifteen companies for each year of the time span in which these companies

were publicly listed. A few companies have reports for the last thirty years. For example, Trizec

Corporation was a publicly listed company since its incorporation in 1960; 1 was able to review the thiity

annual reports of this company issued between 1969 and 1999. Other companies were public for

shorter periods, such as Cadillac Fairview (1975-87 and 1997-99) and Oxford Development

Corporation (1975-79 and from 1987 onward). For private companies, data was obtained through

collection of newspaper articles and advertisements, professional joumals, company brochures,

corporate web sites, and face-to-face interviews.

Identification of office develo~ers

To substantiate the argument that multiple office developen have particuhr spaces in which they

operate, the identification of as many office developers as possible in the Toronto area was needed.

This was one of the most challenging tasks, since there is no single source that has this type of

information. The task was further complicated as a result of the large number of office buildings

constructed in the last thirty yeais. ln 1999, there were more than 1200 office buildings in the Toronto

metropolitan area; in comparison, in 1969 there were only 350 office buildings. Many buildings have

passed on to new owners and it is very cornplicated to identify the original developer. A large nurnber

of sources was needed to accomplish the identification of office developen and to match them to

particular buildings (details in section 3.4).

Financial institutions and office development

Most of the sources on the involvement of banks and life insurance companies in real estate financing

and development do not differentiate between types of real estate assets (residential, industnal, office

and retail) or whether buildings were developed or acquired by these companies. Annual reports,

except for providing aggregate figures of mortgage and real estate investment, also do not indicate the

type and location of these investments. Only since the late 1990s have annual reports of selected Me

insurance companies differentiated the mortgages by real estate product (residential, retail, industrial or

office) and provided information segmented by property type on the real estate portfolios owned by

these companies. These companies are the largest Me insurance companies and the most actively

involved in commercial real estate. They include Manulife Financial, Sun Lie, Great-West Life, and

Canada Life. ln addition, 1 collected items (newspaper articles, advertisements) on the involvement of

financial institutions in real estate investment. One life insurance company, which was the most active

in real estate development over much of the 1970s and 1980s, Manulife Financial, is examined in

detail. I obtained data on this company through access to intemal reports and interviews with company

executives. Data on Manulife Financial includes the company's detailed real estate portfolio broken

down into office, retail, industrial, and residential assets. In addition, the office portfolio is differentiated

by location, including information on individual office buildings in Canadian cities. For banks,

information is based on a nurnber of sources. Unlike annual reports of life insurance companies, which

provide some information on their real estate exposure, the annual reports of banks are structured in

such a way that real estate is embedded in other business segments. A variable degree of information

was obtained on three Canadian banks. The Canadian Imperial Bank of Commerce (CIBC) real estate

subsidiary, ClBC Development Corporation, which was active in real estate between the late 1980s

and the late 1990s. published a number of intemal reports. The publicity regarding the sale of the Royal

Bank real estate portfolio in late 1999 provided the extent of the bank's ownenhip of office buildings.

Finally, through the archives of the Bank of Nova Scotia, the bank's Staff Magazine. and annual

reports, information on its involvement in real estate was collected.

Municipal c~overnments and office deve lo~ment

Information on municipal niles was gained through the examination of official plans. Official plans

express the policies and intent of municipalities regarding their physical development. Selected official

plans in the Toronto metropolitan area were scrutinized (City of Toronto, North York and Mississauga).

These plans provide the platform for development which is then translated into specific zoning bylaws.

Based on statements in these offiiial documents the policies that directly or indirectly shape office

developrnent were exarnined.

Municipal practices are diverse and flexible. Practices are more diicult to assess than policy

documents sucb as 'OffÏÏal Plans'. During the process of prepanng an official plan revision,

submissions to the council by different individuals and organizations are made. These submissions

reflect the concerns of interest groups. In this study, submissions to the North York City Council

regarding the amendment of the city's office policy are examined. Staff Reports (professional opinions

of the planning deparbnents in municipalities) on planning issues and reports by hired consultants are

another source of information. Finaliy, articles in the Globe & Mail. the Toronto Star, and the

Mississauga Business Times on issues such as land use rezoning, amendments to official plans, and

the interaction behveen developers and municipalities are used.

Interviews

Interviews as dialogues with industry insiders are an important strategy in economic and social

geography (Schoenberger, 1991; Clark, 1998; Cochrane, 1998: McDowell, 1998). Schoenberger (1 991,

p. 188) notes the contribution of inteiviews to the understanding of corporate strategies:

The richness of detail and historïcal complexity that can be derived from an intewiew-based approach alkws one

to reconstnrct a coherent representation of how and why particuiar phenomena came to be. In this sense, the

method can greatly ampli and complement information derived from more conventional approachesn.

Case studies and individuai observations offer the opportunity to reflect upon stylized facts or

conventional interpretations of economic and social change. Although 'sacrificing' to some extent

representativeness and statistical generalization, this type of insight is valuable, especially in the

compact and highly interconnected real estate sector. One important element of this sector is informal

knowledge networks that facilitate obtaining information through intensive social networks. This is

reinforced by the fact that it is a highly compact sector in terms of the number of major players

functioning as the pivots in the real estate development field.

The total population of the publicly held real estate companies that have been engaged in

commercial real estate developrnent in Canada, and specifically in office development, is small. I have

interviewed the former and present senior executives of most large Canadian real estate companies. In

addition, interviews with smaller players, such as privately held and foreign companies, were

conducted. Financial institutions involved in real estate were also interviewed. Interviews with a

brokerage firm and a real estate consultant were designed to provide additional insights.

Most of the interviews were ananged by telephone. The majority of the chosen executives

expressed their willingness to engage in a short interview (30 minutes). The large and publicly traded

cornpanies were the most cwperatnre, whereas privately-held companies tended to be more secretive

and less willing to participate in interviews. Initial interviews generated personal introductions to

executives in other companies. The interviews were mostly with senior executives, from the chief

executive officer or president of a company to vice presidents. In several companies, interviews with

leasing directon were conducted. In total I have conducted 29 interviews (Table 2.2). In the end of the

reference section, a detailed list of interviewed persons and interview dates is provided.

Table 2.2 List of interviews

Type of Number of Number of

company companies interviews

Pubticly listed 7 15

Privately held 3 4

Foreign 1 1

Life insurance 1 4

Banks 2 2

Brokerage firrn 1 1

Consultant 1 1

Advisor 1 1

Total 18 29

The interviews were camed out between May 1999 and April 2000, with the majority of interviews

undertaken between May and July 1999. Most of the executives interviewed had muitiple experience in

different real estate companies. In other words, they held positions in more than one real estate

company throughout their professional career. Furaier, some switched positions between the public

(local govemments) and the private sector, for example, from a position in a municipal planning

department to a position in a real estate company. These muliple employment positions are

advantageous to my research for two reasons. First, although I interviewad a Iimited number of

executives, their multiple expenence provides hsights that are beyond their cuvent position or the last

position that they held. Second, this enables them to reflact on the industry from a broader point of

view. In addition to completing information on the corporate histoiy, the major themes in the interviews

included the following areas: corporate criteria for locational decisions regarding development at

different spatial scales at different times, the critena for engagement in different types of property

development and investment, the sources of financing, and the importance of specifc municipal

settings (Table 2.3).

Table 2.3 Major themes and questions in interviews

Theme Specific questions Locational decisions How did the company choose specific sites?

What is the dierence between downtown and suburban devebpment?

What is the importance of creating 'presence' in a particular location?

What are the motives for diversification at the national or international levels?

How did the company's spatial strategy change over time?

Types of real estate investments What are the reasons for devebping offie buildings?

M a t causes the shifting of investment between different types of properties?

M a t are the criteria for development and what are the criteria for acquisition?

Did the company develop speculative buildings or did it custom-built?

M a t are strategic assets and properties that draw on changing opportunities?

Financing What were the Company's major sources of financing?

How did financing affect the type and scale of development?

Ooes oie company have permanent financial partners?

M a t criteria are ernployed by financial institutions for the provision of loans?

Urban setting How does the company 'know' where to develop?

M a t are the advantages of staying in the same place?

What is the role of the local municipality in the process of office development?

Prior to undertaking interviews, extensive research on office development was conducted. It allowed

questions to be formulated in the language used in the real estate sector. In addition, each interview

was preceded by extensive research undertaken on the specific company or companies under

investigation. For each organization in question, a specific schedule was tailored by drawing upon

background research on that specific organization. This familiarity and knowledge assisted in

establishing credibility and allowed dealing with specifn issues. Interviews were open-ended, with

questions prepared in advance; however, I was responsive to issues raised during the interviews and

often changed the questions according to the direction the interview was taking.

The interviews have provided a set of rich infornation and helpful ideas for this research. In

general, the interviewees were quite straightforward about strategies, relationships with municipal

govemrnents, and financing. However, since I underplayed the importance of financing in the eady

stages of this research, I was able to attain less information than ! hop& to get. Also, when I touched

upon this issue, it was often diffiiult for the penons interviewed to remember the specifcs of financing

arrangements. Otherwise, most of the interviewees had a good recollection of events, and since some

of them are not currently in the forefront of the business they were veiy open. Interviews with former

executives tended to be long (about an hour) and, therefore, encompassed a larger number of issues.

Some problerns arose with the currently active persons due to time limits (about 30 minutes) and their

reservations regarding current information. Interviews with private companies were the most

problematic since they attempted not to reveal detaik, and I felt that they were holding back

information.

AI1 interviews were typed in their entire length and cornpletely transcribed. Each interview produced

between 3 and 4 pages of typewritten notes.

CHAPTER THREE

THE CHANGING CANADIAN REAL ESTATE SECTOR

The changing nature of the Canadian real estate sector in the twentieth century has received little

attention. There have been only a few studies which include the history of real estate developers in the

first half of the centuty (Gad and Holdsworth. 1984, 1987a, 1987b). h i l e research in the 1960s and

1970s had been, to a large extent, aimed at exposing the 'conspiracy' surrounding real estate

development (Collier, 1974; Gutstein, 1975; LorÎmer, 1978). A major part of the more recent knowledge

on real estate developers is based on the exceptional case of Olympia & York (Sudjic, 1992; Crilley,

1993; Fainstein, 1994; Ghosh et al., 1994).

This chapter explores the development of the Canadian real estate sector, the role of

Canadian developers outside Canada, and the role of foreign developers in Toronto. The real estate

sector in Canada in general and the sub-sector engaged in offm development in particular has

changed drarnatically over the last half a century. Changes at the industry level, such as sire, propeity

type, and modes of operations are complemented by changes in the spatial arenas of operations.

This chapter is made up of four sections. The first section outlines the four major phases of the

real estate sector's history through the examination of the major real estate companies in Canada.

Since Canadian-based real estate companies have been very active in the United States, section two

provides a concise account of these companies' operations in office development in the United States.

Foreign real estate companies also formed subsidiaries in Canada and were invoived in the real estate

sector; this aspect is discussed in section three. Finally, as this study focuses on Toronto's office

development, section four identifies the major real estate companies that have been active in office

development in the Toronto metropolitan area. The chapter concludes with an attempt to use

knowledge generated frorn documenting the history of the real estate sector to sketch a typology of the

diverse and changing character of real estate companies.

3.1 The Trajectory of Commercial Real Estate Companies in

Canada During the twentieth century. and particulaily in the last forty years, the Canadian real estate sector has

grown in scale and scope and has experienced a senes of important changes. Before World War II,

financial institutions and large usen of space camed out most office development. During the two

decades after the War, the vast majonty of the contemporary brgest commercial real estate companies

in Canada were established. During the next phase, between the eariy-1970s to the late-1980s,

Canadian real estate companies consolidated and divenified, and becarne sorne of the largest real

estate companies in Notth America. Finally, during the 1990s, the sector has restnrctured as some of

the largest real estate companies disappeared and institutional investors have taken a commanding

position.

Before sketching the history of the real estate sector in Canada, its relative weight in the

Canadian economy needs to be addressed. Detemining the overall size of the real estate sector is

problematic for a nurnber of reasons. First, do you measure the sector by the value cf the real estate

properties or by the assets of the real estate companies? Do you include land in this calculation or only

the value of the built structures? Miron (2000, p. 156) estimates the size of the real estate sector in

Canada by using the total value of land assets and the value of the built structures (residential and non-

residential). Based on his calculation, in 1997real estate assets amounted ?or 28 percent of al1 assets

(which range from property to saving accounts to equity stocks) in Canada. Using this method, in the

penod of 1966 to 1991 the share of the real estate sector was even higher: between 32 to 35 percent

(Table 3.1).

Second, focusing on the non-residential component of the real estate sector would result in a smaller

share of the real estate sector in the economy. Considering business (not including govemment) gross

investment in the fom of construction of new buildings and additions, repairs and renovations of

existent buildings (not including land) as a percentage of the GDP brings the share of the real estate

sector down to 4 to 8 percent in the period 1966-1996. Finally, if we want to focus on real estate

companies, which companies are to be included in this sector? Statistics Canada uses the Standard

Industrial Classification (SIC) to define 'real estate operators and developers'. This is a very expansive

definition, since it includes companies that are not directly related to real estate development and

ownership. As a resuk, a large number of fitms are included in this category. For example, in 1971

there were over 26,000 fimis defined as 'real estate operators and developers', and in 1986, 55,000

firrns. Also, large owners of real estate assets such as, life insurance companies and pension funds are

not included in this definition. Using the definition of operators and developers results in the real estate

sector accounting for 5 to 8 percent of the assets of al1 companies in Canada between 1966 and 1996

(Table 3.1).

To provide estimations on the relative role of the real estate sector, Statistics Canada suiveys

are used: National Balance Sheet Accounts (Catalogue No. l3-214), Corporation Financial Statistics

(Catalogue No. 61-207, later Financial Statistics for Enterprises, Catalogue No. 61-219) and National

Economic and Financial Accounts (Catalogue No. 13-001). The first sunrey, National Balance Sheet

Accounts, provides data on total assets in Canada. The second survey, National Economic and

Financial Accounts, enables the calculation of the percentage of investrnent in non-residential

structures in relation to the GDP of a paiticular year. Using the third survey, Corporation Financial

Statistics, makes it possible to calculate the relative weight of the assets of 'real estate operaton and

developers' in relation to total corporate assets.

Table 3.1 The weight of the real estate sector in the Canadian economy, selected years, 1966-96

Year Real estate sector as a Invertment in non- Real estate cornpanier (3) as a % of total assets (1) residential structures as % of total coiparate assets

a % of GDP (2)

1966 31.6 7.0 5.3

Notes: (1) Real estate assets include land, residential and non-residential structures. (2) Annual investrnent by the business sector. (3) Assets of real estate operators and developers. (4) 1997 figure (Miron, 2000, p. 156). Sources: Statistics Canada, Corporation Financiat Statisticç, Catalogue No. 61 -207 (1 971, fW6, 1981, 1986); Financial Statistics for Enterprises, Catalogue No. 61 -21 9 (1 991, 1996); National Ewnomic and Financial Accounts, Quarterfy Estimates, 1961 -1992 and Third Quarter 1998, Catalogue No. 13-01; National Balance Sheet Accounts, Annual Estimates, Catalogue No. 13-214.

The share of the real estate sector in total assets has been quite stable in the period 1966 and 1991.

Its most severe decline was in the 1990s: it decreased from 32 to 28 percent of total assets between

1991 and 1997. The highest values of the other two indicaton occuned at different times. The peak of

investment in non-residential structures was in 1981 (7.8 percent) while the assets of real estate

operaton and developen peaked in 1991 (8.2 percent); both reached their lowest values in 1996. High

inflation in the earîy 1980s contributed to the relative increase in the value of non-residential structures;

the aftermath of the 1980s building boom is reflected in the increased share of real estate operaton

and developen' assets in the economy in 1991. The slowdown in real estate development in the eady-

to-mid 1990s resuited in low values of both indicators in 1996. lnvestrnent in non-residential structures

includes investrnent in shopping centres, industrial buildings and office buildings, but also schools,

hospitals, and infrastructure, such as highways, bridges and sewen. Office buildings consist only a

small fraction of investment in non-residential structures. An coarse estimate would indicate that

investment in office buildings is likely not more than 1 percent of annual GDP, that is a very small pait

of the economy and very much out of line with the high visibility of office buildings.

Table 3.2 provides a list of the largest Canadian-based ownen of real estate assets in the last

thirty yean. Our ability to construct a detailed history of the real estate sector in general and of office

development in particular encounten several problems. First, information regarding the assets of real

estate companies is available only for the publicly listed companies, which are generally the largest.

The assets of the twehre-largest real estate ownen increased six-fold between 1971 and 1999 (in

constant 1992 dollars) and their share in the real estate sector (total assets of 'real estate operaton

and developen' as defined by the SIC) grew from 15 percent in 1971 to 46 percent in 1999 (Table 3.2).

The 1980s office building boom is not shown in Table 3.2 since at that time the economy as whole

experienced expansion; as a resuit, the share of investment in non-residential structures remained

almost unchanged. The increase in the 1 980s and 1 990s is a result of the large real estate companies

becoming even larger, and because life insurance companies and pension funds became increasingly

large owners of real estate assets (and listed in Table 3.2); however, life insurance companies and

pension funds are not included in the definition of 'real estate operators and developers' under the

Standard Industrial Classification.

Privately owned real estate companies are not listed in Table 3.2, since no systematic

information is available. One Company that is missing and should with no doubt appear in this list is the

privately-owned Olympia & York, one of Canada's largest real estate companies between the mid-

1960s and the early 1990s. A second problem is that figures for the share of office properties (in dollar

value) of the total real estate assets of companies are unavaiiable for the period between 1971 and the

early 1990s (available only for the late 1990s). Nevertheless, based on the analysis of the annual

reports of twehre-large companies, it is suggested that office properties have gained importance during

this period. For instance, in 1971 four companies owned more than three office buildings each, while

nine did in 1991.

Table 3.2 The largest (publiciy held) Canadianbased ownen of real estate assets, selected yean. 1971 -99, $ million (1)

Cadillac 1,092

Manulife 1,048

Marathon 731

Sun Lie 71 9

MEPC 382

Bramalea 373

Oxford 36 1

Western 353

McLaughlin 349

Total 9,542 Total real estate 62,000 owners (9) % of 15.4 owners

Trizec 4,321

Nu-West 4,287

Daon 4,025

Campeau 2,396

Oxford @O) 2,377

Carrna 2,149

Brarnalea 1,964

Marathon 1,849

Sun Life 1,263

Manuliie 1,053

Markborough 973

Bramalea

CF (2)

Manulife

Marathon

Cam bridge

Markborough

BCED (3)

Sun Life

Campeau

Confed. Life (4)

Oxford

Caisse (5)

Brooùîield

OMERS (6)

B.C Pension (7)

Cam bridge

Oxford

Manulife

Teachers (0)

Sun Life

Riocan

Notes: (1 ) AI1 asset values are adjusteci to the Consumer Price Index (1 992=lOO). Not included in this table is Olympia 8 York Developments, which in 1981 and 1991 was probably the largest real estate Company in Canada. (2) Cadillac F a i ~ e w ; in 2000 as a result of the purchase of Cadillac FaiMew by the Ontario Tea&ers Pension, and the consolidation of the two portfolios, it assets grew to $9.3 billion (Globe & Mail, May 25,2000). (3) Daon changed its name 10 BCE Devebpment Corporation in 1986. The asset value of BCED is for 1990. (4) Confederation Life. (5) Caisse de Depot et Placement du Quebec (pension fund). Caisse owns 73 percent of Cambridge. (6) Ontario Municipal b a r d Employrnent Retirement System (pension fund); OMERS is the single-largest shareholder of Oxford. (7) National Posf, December 1 1,1999. (8) Ontario Teachers Pension Plan Board was the single-largest shareholder of Cadillac Fairview until it acquired full ownership in early 2000 (Globe & Mail, Match 27,2000). (9) The SIC group 'reaf estate operators and developers' (Statiçtics Canada, Corporation Financial Statistics, Catalogue No. 61 -2O7,61-219). Sources: Canadian lnstitute of Public Real Estate Companies, Annual Reports; Company Annual Reports; Annual Reports of Pension Funds.

In Table 3.2 the same hrge real estate companies appear throughout the 1971 to 1991 period, but

there are a few newcomen and othen disappear between 1971 and 1981. However, the most

significant change was in the 1990s. when for the fint time four of the largest owners of real estate

assets were pension funds. In addition, in this thirty-year period, two life insurance companies were

among the largest ownen of real estate properties. Real estate assets owned by publicly held real

estate companies are for incorne-producing purposes. The vast majonty of real estate assets owned by

pension funds, and the majonty of real estate assets owned by life insurance companies are also for

income generating purposes. Banks are not listed, since their major real estate properties are for their

own use rather than for incorne purposes. Banks rent out space in their head office buildings. but their

total real estate portfolios are generally not investment driven.

3.1.1 Office development in the first half of the twentieth century

Even though there has been relatively little research on office development in Canada in the first half of

the twentieth century, it is possible to discem some characteristics of the businesses engaging in office

development (Gad and Holdsworth, 1984, 1987a. 1987b; Gad and Matthew, 2000). Gad and

Holdsworth (1987a. 1987b) examined office buildings and their occupants in Toronto's old office

district, which was, until the second half of the hventieth century, the prirnary office district in Toronto

(approximately 98 percent of Toronto's office space in 1951). Erecting office buildings solely for

investment purposes (incarne-producing properties) constituted a small segment of the real estate

development sector before the Second World War. Until that time, owner-occupiers, such as banks and

life insurance companies, devebped office buildings, which were usually multiple-occupancy buildings.

Building owners occupied variable portions of the floor-space while excess space was leased to

various kinds of office-type tenants (Gad and Holdsworth, 1987b). This practice was developed to

seive as an additional income for the company's main business, not as the chief source of revenues.

Building owners could justify occupying an expensive site by building at a high density, renting out

space, and collecting revenues. Real estate companies developing office buildings for primarily

investment purposes were active to some extent by erecting small-to-medium size, multiple tenant

buildings.

In the 1920s and to lesser extent in the 1930s, other developers/owners emerged, especially

newspaper and utility companies. Also noticeable were speculative office developers, whose buildings

did not cary developerlowner or anchor tenant company labels. In their first phase in the late 1910s

and early 1920s. the company Yolles and Rotenberg (known later as YBR) built theatres on a contract

basis, and then diversified into industriaüwarehouse loft buildings. In the 1920s. they branched out into

developing speculative office buildings at the expanding western edge of Toronto's office district, in an

area that was then rnainly occupied by factories and warehouses.

3.1.2 The formative era of modem developers: Entrepreneurial skills and

'external' capital

During a single decade, between the mid-1950s and the mid-1960s, most of the large Canadian real

estate developrnent companies were fonned. Usually, these companies staited as developen of single

projects, either residential or commercial, targeting specific tedories. The role of financial institutions

as developen diminished as real estate development companies gradually became the dominant

providen of commercial space. Also, during this period, some of the largest local developen in the

Toronto area were created.

The emergence of large and divenified real estate companies in Canada is a postwar era

phenomenon. Most of Britain's largest property cornpanies were founded immediately after WWll

(Scott, 1996). MEPC (Metropolitan Estate and Property Corporation) and Hammenon Property

Investment and Development Corporation, two companies to 'invade' the Canadian real estate market

in the 1950s and the 1960s, were a product of this process. Similady, in the United States, the largest

divenified real estate companies were formed or developed out of rapid expansion after the War.

Examples include Webb & Knapp (associated with the fint commercial mega-developer, William

Zeckendorf), Trammel Crow (established in 1948)' and G. Hines lnterests (1 957).

In Canada, the emergence of large and divenified commercial real estate companies staited a

decade later. All the cunent diversified real estate companies invokred in the commercial real estate

sector were fonned between the mid-1950s to the mid-1960s. Although some have disappeared,

restructured or rnerged with other companies since, their core identity can be traced to this period. The

large Canadian real estate companies that were founded in ths 1945-1965 period are listed in Table

3.3.

Two major types of real estate development companies were established in this phase:

entrepreneurial-based companies and spin-otfs from large non-real estate corporations. Companies

based on a combination of entrepreneurial skills and 'trial and error' practice usually started with a

single project (residential or commercial) and as a resutt of their successes, the founders went on to

develop other real estate projects. This type includes a few of Canada's prominent companies:

Campeau Corporation, Cadillac Development Corporation, Oxford Development Corporation, and

Olympia 8 York Developments. The initial lack of capital forced this type of Company to punue a

strategy of 'build and seli'. Buildings were sold immediately after completion. In this case almost no risk

was invohred, since the sale of the pmperty was guaranteed by rental agreements prior to construction.

Table 3.3 A profile of the large Canadian real estate companies in their initial phases

Company Year Major real Geographical Type of Corporate affiliation forrned estate area of company

business operation Campeau 1 949 Residential Ottawa Entrepr.

Cadillac 1 953 Residential Southem Ontario Entrepr.

Brarnalea 1 957 Land, Resideritial Toronto suburbs Entrepr.

Faim-ew 1959 Retail, CMice Toronto Corp. spinoff Seagram (1)

Olympia 8 York Late 1950s Industrial Toronto suburbs Entrepr.

Trizec 1960 Office Montreal Foreign U.SN.K. interests (2)

Oxford 1960 Office Edmonton Entrepr.

Cambridge 1960 Retail Southem Ontario Entrepr.

Marathon 1 963 Land Westem Canada COQ. spm-off CPR (3)

Daon 1 964 Residential Western Canada Entrepr.

Markborough 1965 Residential Toronto suburbs Corp. spinoff Canadian corporations (4)

Notes: Entrepr. - Entrepreneurial. Corp. spin-off - Corporate spinoff. (1) Seagram Distilleries. (2) A U.S.-based real estate company and two British insurance companies. (3) Canadian Pacific Railways. (4) The company was founded by 16 major cornpanies and financial institutions. Sources: Companies' Annual Reports, Goldenberg, 1981, and other sources (newspapers, joumals, biographies).

The other type of real estate Company was a fim based on the financial support of one or several

larger companies from the industnal or the financial sectors. Large sums of capital were accessible

either through intemal sources or through loans based on the credibility of the parent company. These

real estate amis were investrnent diversification vehicles of large corporations: Fairview Corporation

nas the real estate am of the largest Canadian distillery, Seagrarn Distilleries. fonned to provide a

hedge against inflation; Marathon Realty, the real estate ami of Canadian Pacific Railways, was

created to acquire and develop those lands of Canadian Pacific not required for railway purposes;

Trizec Corporation was formed as a partnenhip between a U.S. developer, William Zeckendorf, and

two British-based insurance companies.

In their early stages (until the late 1960s) six out of the eleven companies listed in Table 3.3

were primarily land and residential developen; the other five were developen of office, retail and

industrial properties. The spatial focus of most of the companies was on specific regions or cities. In

later stages these companies dive~ified in ternis of development type and location. Except for Olympia

& York, al1 companies were publicly held companies since their formation or in later stages. Some of

the most prominent privately held companies can also trace their origin to the 1950s and 1960s. In the

Toronto area, companies like H&R Devebpments, Inducon Development Corporation, Orlando

Corporation, S.B. McLaughlin, and Shipp Corporation were either fomed or expanded during this

phase. Most of these companies were primarily residential developen in the urban fringe in their eady

phase. For instance, Shipp and Mcbughlin were land and residential developen in the western edge

of the Toronto Census Metropolitan Area (Etobicoke and Mississauga). Two of the fint developen of

office buildings in suburban Toronto commenced office development in the 1960s. Inducon, mainly an

industrial developer, built its first office building in the mid-1960 in North York; Orlando built its fint

office building near Toronto's International Airport in the late 1960s. Later, primarily in the 1970s and

1 9 8 0 ~ ~ these companies became developers of office buildings. Financial institutions, such as banks,

trust companies, and life insurance companies, the prominent office developers in the pre-WWII ara,

became less important as developers of office buildings as the newiy established developers gained

control. One of the few financial institutions to becorne an active developer was the Manufacturers Life

lnsurance Company, which launched its first speculative office development in Toronto in the mid-

1960s.

During most the 1950s and throughout the first haH of the 1960s there was relatively little office

development in Canada. This situation changed in the late 1960s as white-collar jobs stimulated office

developrnent. By the early 1970s, office development was growing rapidly and the newly forrned real

estate companies began to capitalize on the increased demand for office space. lllustrative of the

growing scale and importance of office development in Canada was the formation of Trizec Corporation

to execute the development of the Place Ville-Marie complex in Montreal in the early 1960s (Collier,

1974; Lorimer, 1978). When completed in 1962, it was the largest office complex with the largest office

tower in Canada. Place Ville-Marie was followed by a similar-size project in Tomnto, the Toronto-

Dominion Centre, developed in the mid-1960s by the Fairview Corporation and the Toronto-Dominion

Bank. Each of these two projects involved a mulple-building complex at a magnitude not seen before

in Canada and two companies that henceforth belonged to the set of the largest Canadian real estate

development corporations.

3.1.3 The golden era of office development: Expansion and the establishment

of real estate powerhouses

In the 1970s and 1980s a new phase o m n e d in the structure of the commercial real estate industry in

Canada. This phase was characterized by rnergers and acquisitions and by the changing character and

volume of foreign investment. In addition, companies increasingly emphasized commercial

development and divenified spatially across Canada and into the United States. Unlike the previous

round of office development, which was strongly related to increasing demand for office space, the

1980s office building boom and to lasser extent the 1970s boom, were related to supply-side

considerations. In the midst of the glut of office space in the eady 1980s in Calgary, for example, real

estate companies continued the development process. In the late 1980s, when the construction of

office buildings reached unprecedented heights in Toronto, some developers still pursued

development. This occurrence supports the argument raised by several authors (Beauregard, 1994;

Fainstein, 1994; Downs, 1998) that office development was fueled by available financial capital that

was searching for profitable investments.

On the eve of the 1980s boom, Canadian-controlled companies had secured their dominant

position in real estate developrnent. In 1981, in contrast to the 1970s, al1 real estate companies were

rnainly developen or owners of commercial portfolios (shopping centres, industrial buildings, office

buildings and mixed-use complexes). Residential properties constituted a diminishing segment of their

total real estate portfolios as some prominent real estate companies disposed of their residential

assets. ln the eariy 1980s, push-pull factors downgraded the position of land and residential properties

for real estate companies. High inflation, and consequently high interest rates, made holding large

unproductive land banks an unrewarding channel of investment. In addition. the highly regulated

tenant-landlord relationships and signs of an expanding economy encouraged companies to shift

corn pletely into commercial development. As a result, leading real estate companies li ke Cadillac

Fairview, Campeau, and Daon disposed of their land and residential holdings in the earfy-to-mid 1980s.

Mergers and acquisitions within the real estate sector enabled the consolidation of the real

estate industry and the creation of large companies. In this process it allowed them to gain dominance

in multiple markets across Canada. Trizec's growth strategy invohred acquiring smaller companies and

using their assets and market dominance to penetrate new markets. In 1970-1, the acquisition of two

real estate companies allowed Trizec to establish a presence in western Canada, particularly in

Calgary and Vancouver. The Oxford Development Group adopted a smilar strategy. In the late 1970s,

in an acquisition spree in Canada and the United States, Oxford bought several companies, including

Y&R Properties, one of the largest office development companies in Toronto. The prime component of

the consolidation process in the real estate sector was the 1974 merger of Cadillac and Fainriew into

Cadillac Fairview Corporation. This merger created Canada's largest public real estate Company. The

merger movement was associated with increasing Canadian control of real estate and a decline in

foreign control of Canadian real estate. During this phase, Canadian developen also expanded their

operations into the United States and by the late 1980s more than half of their office portfolio was south

of the border (section 3.2).

Sirnilar to their practices in the first half of the twentieth century, financial institutions,

particularly banks and life insurance companies, resmerged as important developers of office

buildings. Banks were invohred as developen, joint venture partnen or investon in the construction of

their head office buildings, or even through the establishment of a real estate subsidiary (CIBC

Development Corporation, the real estate subsidiary of the Canadian Imperia1 Bank of Commerce). In

the 1 980s, life insurance companies joined the boom in office development by becoming developen of

buildings, primarily for income-producing purposes, across Canada (see Chapter Four). In addition,

private cornpanies thriving rnainly in the suburban areas of Toronto became an important component of

the office developrnent sector. Developers that were until the 1970s primarily residential and industrial

developers diversified into office development. Suburban real estate developers founded in the 1950s

and the 1960s as developers of industrial areas began erecting office buildings in the suburbs. lnducon

Development Corporation and Orlando Corporation continued to develop office buildings in the Toronto

area in the 1970s and especially in the 1980; by the late 1980s lnducon becarne the largest office

developer in suburban Toronto and one of the largest developers in the Toronto CMA. Further, real

estate companies that were mainly engaged in residential development diversified into office

developrnent. McLaughlin, the largest landowner in Mississauga and the developer of the Mississauga

City Centre. built his first office building in 1970. Shipp, another developer with a residential origin,

began the developrnent of a three-building office complex in Etobicoke in the early 1980s.

3.1.4 The institutionalkation of the real estate sector and the emergence of

new entrepreneurs

The deep recession in the real estate market of the early 1990s resulted in a major restnicluring of the

real estate sector. This invohred the demise of some of the largest Canadian developers, such as

Olympia & York, the reconfiguration of other companies, such as Trizec, and the stronger participation

of pension funds in real estate as major investors in real estate assets and real estate companies. Also,

new playen, focused on the reuse of older buildings, appeared on the scene.

In Uie early-to-mid 19Ws, the office market in Canada experienced its worst slump ever: the

value (in constant dollars) of o f f i building pennits issued in 1995 were at the same level as in 1970

(Statistics Canada, Building Pennits, Catalogue No. 64-203). Most of the prominent real estate

companies of the previous three decades experienced various levels of difficulties. Soaring and

unprecedented office vacancy rates in the Canadian cities in the early 1990s caused low rents (even

negative net rents, since the owner of an unoccupied building has to pay for operation costs like hydro

and taxes). Real estate companies were not able to senrice their debts. As a resu, real estate

companies either restnictured their office portfolios by disposing of properties in order to reduce debt,

took new partnen as major shareholden, or went bankrupt. The most spectacular resut of the slurnp

was the collapse of Olympia & York in 1992; however, many other companies followed including

Bramalea Limited, Campeau Corporation, Marathon Realty, and lnducon Development Corporation. On

the other hand, beginning in the eady 1990s and gaining momenturn throughout that decade, pension

funds became major ownen of office properties and of publicly listed real estate companies. especially

as life insurance companies and banks reduced their real estate investrnents.

At the present time, the two largest Canadian-based real estate companies constihite

elaborate 'reincamations' of former organizations. Brookfield Properties Corporation is the product of

the restructuring of the real estate holdings of the EdperBrascan Group, a conglomerate with holdings

in industrial, resource and financial companies. The Group has been involved in real estate since the

mid-1970s, when it acquired control of Trizec Corporation (until then a foreign-owned company). In

1994, EdperBrascan sold its ownership interest in Trizec to Horsham, a holding company of Bamck

Gold (Canada's largest gold mining company). Also, in the late 1980s, the EdperBrascan Group

acquired BCE Development Corporation (BCED). In the eariy 1990s, the restnicturing has led to the

consolidation of the portfolios of BCE Development Corporation and the major properties held by

Olympia 8 York Developments (including the World Financial Center in Manhattan), under the roof of

Brookfield. TrizecHahn Corporation is the reincarnation of Trizec (formed in 1960) reinforced by an

infusion of capital from Bamck Gold in the mid-1990s. The majority of the current real estate assets of

both companies, Brookfield and T rizecHahn, is in the United States; in 1999,56 percent of Brookfield's

and 78 percent of TrizecHahn's office portfolios were in the United States (Annual Reports, both

companies). In mid-2000 TrizecHahn sold the rnajority of its Canadian office portfolio, making its U.S.

office portfolio and to a lesser extent, its European portfolio, the company's entire office holdings

(TrizecHahn Corporation, Press Release, June 8,2000).

Since the mid-1990s. several financial institutions have reduced their exposure to real estate.

whereas other investon have become the prime force in the commercial real estate sector. Following

the 1990s slump, life insurance companies began to consider real estate developrnent and investment

as a highly risky business. The real estate portfolio of Manulife Financial, the most active life insurance

Company in office development (in the 1990s. over 80 percent of its real estate pomolio was comprised

of office buildings). reduced its real estate assets from ten percent of the company's invested assets in

1992 to six percent in 1997 (Manulife Financial, Annual Reports). Similady, while London Life had 12

percent of its investments in real estate in 1992. the Company had reduced its real estate exposure to

three percent by 1998 (Dominion Bond Rating Service, 1999). Banks followed this trend by considering

real estate as noncore assets. Consequenüy, in the kte 1990s. two of the major Canadian banks

(Royal Bank and CIBC) sold their non-branch office buildings and one (Bank of Nova Scotia) sold part

of ils real estate assets.

Two main institutional investon became dominant forces in the real estate sector. Athough

being involved in real estate in the 1970s and 1980s. pension funds had become the most important

investors in real estate at the end of the 1990s. Pension funds :ook advantage of the growing

availabiltty of properties as real estate developen became stranded by the devaluation of their

properties and as their cash flow dropped. Wiih their long-temi perspective, little need to get into debt.

and real estate considered as an efficient hedge against inflation. pension funds were extremely active

in the acquislion of commercial real estate properties. By the end of the 1990s. the pension funds were

described by the Globe & Mailas the 'big kids on the block' (Globe & Mail. November 14,1998).

Pension funds not only acquired already existing office buildings (and shopping centres) but

also invested in publicly traded real estate companies. In the 1990s, the Ontario Teachen Pension

Plan Board became the single largest shareholder in Cadillac Fairview with a 22 percent equity stake;

in December 1999. it acquired the remaining 78 percent and became the Company's sole owner

(National Post, December 2. 1999). The Ontario Municipal Employees Retirement System (OMERS)

became the single largest shareholder in Oxford Properties Group in 1998; OMERS participated in the

acquisition of the Royal Bank portfolio in 1999. Quebec's largest pension fund, the Caisse de depot et

placement du Quebec, acquired a 73 percent equity stake in Cambridge Shopping Centres (one of the

largest shopping centre developers) and a 48 percent stake in Bentall Corporation (Globe & Mail,

December 3. 1999). By 1999, pension funds were prominent ownen of both real estate properties and real estate companies in Canada. Canada's four largest public pension funds were among the twelve

largest owners of real estate properties (Table 3.2). In the late 1990s. pension funds through their

association with real estate management companies began to engage in office development. Penreal

Capital Management, a manager of real estate investrnents for a gmup of pension funds, is the

developer of the new 800,000 square feet office complex for the Royal Bank in Mississauga, and

OMERS as a partner of Oxford Properties Group, is active in the development of an office building in

Calgary. Unlike large pension funds that have their own real estate ans, mid-sized pension funds use

segregated funds that are managed by Me insurance companies or professional management

cornpanies in order to invest in real estate properties. One such management Company is QWL Realty,

a wholly-owned subsidiary of Great-West Lie Assurance Company. GWL Realty owns and manages

real estate assets on behalf of 150 mid-sized and small pension funds; its major segregated fund had

over $1 billion of managed real estate assets (National Post, April 16, 1999).

Another emerging force in the Canadian real estate sector since the eariy 1990s have been

real estate investment trusts (REITs). A RElT is a mutual fund form of ownership of pooled capital that

provides smali investon with the opportunity to invest in and own real estate assets. If RElTs meet

certain requirements, they can pass realized gains through to shareholden and take tax deductions for

the distributions, thus avoiding a double tax (Urban Land Institute, 1998). Typically. a RElT is fonned

by a Company that owns or manages real estate properties. RElTs purchase existing properties and

occasionally they are invoked in development. The RElT issues a security, called a 'unit', which can be

bought and sold by investors. Each unit entitles the owner to a proportion of the net annual revenue

from the RElT properties (Miron, 2000).

In Canada, the relative recovery of the real estate market in the second half of the 1990s and

the abundant supply of properties for sale prompted the formation of real estate inveçtment trusts. The

number of RElTs grew from f i e in 1996 to twelve in 1997 (f iancial Post, January 3, 1998). In terrns of

asset size. RElTs are much smaller than the largest real estate cornpanies; for instance, RioCan, the

largest RElT in Canada, has $2.2 billion in assets in 1999 dollars (the equivalent of 2 billion in 1992

dollars), which ranks it only at the twelfth place among the largest Canadian ownen of real estate

assets (Table 3.2).

RElTs are not developen, their main objective is to acquire and manage real estate assets.

Generally, RElTs tend to specialize in one type of na1 estate (Table 3.4). Most of Riocan's properties,

for example. are retail propeities, while Canadian Hotel lncome Properties (CHIP) specializes in hotels,

and RESREIT in apartment buildings. Some REITs, like Morguard, H&R and Summit have more

diversified holdings.

In the late 1990s, a shortage of quality properties for sale. high property prices, and the desire

to maintain the appreciation of the unit value, encouraged some RElTs to enter the development arena

by financing the construction of shopping centres and office buildings. As suggested by the chief

executive officer of the H&R REIT: Ytls going to become imperative to get into development to stay in

businessn (Financial Post, June 6, 1998). H&R, which has the largest o f f i portfolio among RElTs

(over three million square feet of office space), has provided financing for the development of an office

cornplex for Bell Mobility in Mississauga and for a new head office for TransCanada Pipelines (TCPL)

in downtown Calgary (H&R REIT, 1998 Annual Report). Not oniy is this one of the largest

developrnents since the earfy 1990s (aknost one million square feet), it is also the first large-sale

office development financed by a REIT. H&R REIT was created in 1996 by acquiring rnost of the real

estate holdings of the privateiy-held real estate Company H&R Developments (Globe & Mail, December

5, 1996). The developer of the TCPL building is HIR Developments h i l e the REIT provides

construction financing and has an option to purchase the building upon completion at cost (HBR REIT,

1999 Annual Report).

Table 3.4 The largest real estate invertment trusts in Canada. 1999

RElT Year fomed Assets Principle property types owned ($ million)

RioCan 1994 2,161 Retail

Legacy 1997 1,066 Hotels

H8R 1996 941 Office, industrial, retail

Summit 1996 923 Retail, industrial, office

Morguard 1 997 838 Retail, o f f~e , industrial

CPL 1 997 7?4 Nursing facifies

CRElT 1993 730 Retail, industrial, office

CHlP 1 997 606 Hoteis

RESREIT 1998 489 Apartment buildings

Royal Host 1997 385 Hotels and resorts

Cominar 1998 294 Industrial, office, retail

Source: Real Estate lnvestment Trusts, Annual Reports.

Midst the institutionalkation of commercial real estate in Canada new kinds of entrepreneurial forces

have re-emerged. However, since these new kinds of entrepreneurs have not erected standard office

modemist office towen, they have not received much attention in reseaich on and writing about office

developrnent. The companies in question are small and are primanly engaged in the re-use of older

commercial-industrial buildings located at the fringes of the downtom office districts. These companies

take advantage of demand for 'alternativep o f f i space generated by professional businesses, such as

architects, graphic designers, cornputer software and multimedia fimis. These types of businesses

reject the traditional office tower-type of space and prefer old buildings in which mechanical systems

are upgraded but architectural features kept almost unchanged. This phenomenon is visible in the

areas west and east of Toronto's downtown and in Vancouver (see sections 6.4 and section 7.3.1).

The developers of such buildings include small companies (often owned by architects) buying

one or two old industnal or general commercial buildings and refurbishing them as office buildings. The

only Company of this type that can be considered as medium-size is Allied Canadian Corporation,

which owns approximately one million square feet of office space on the fringes of Toronto's downtown.

Allied acquired 17 commercial-industriaI loft buildings in 1998 and is in the process of 'upgrading' these

buildings to office standards. The financing for Allied Canadian 7s coming from. ..a Toronto money

manager that directs about $500 million in assets for weaithy individuais" (Globe & Mail. October, 15,

1998). Otherwise, information on the size and scope of this type of devebper remains unknown at this

stage.

3.2 Canadian-Based Real Estate Companies and Office Development in the

United States

Until the rnid-1970s. Canadian-based real estate development companies developed office buildings

mainly in Canada. Starting in the mid-1970~~ most of the large Canadian-based real estate

development cornpanies (and also medium-sized companies) began to purchase andlor develop office

buildings in the United States (Goldenberg, 1981; Feagin and Parker, 1990). An analysis of the

geographic distribution of their office portfolios shows that in the decade between 1976 and 1987 the

focal point of the Canadian companies shifted dramatically from Canada to the United States. In 1976

approximately 90 percent of their office portfolio was in Canada and the remaining in the United States;

a decade later, in 1987. only 48 percent was in Canada and 52 percent in the U.S. (Table 3.5). By the

1990s. although the share of U.S. assets for al1 Canadian companies together has rernained almost

unchanged. only two large Canadian-based real estate development companies. TrizecHahn and

Brookfield. had a substantial share of their office properties in the United States. This is in stark

contrast to the mid-1980s. when almost al1 of the hrgest Canadian companies owned office propecties

in the United States.

Table 3.5 Office po~ol ios of Canadian-based real estate companies in Canada and the U.S., selected yean, 1976-99 ('000 square feet)

Company

08Y (1)

Trizec

CF (2)

Oxford

Marathon

Campeau

Bramalea

Brookfield (3)

Total

Percentage

Notes:

197 6 Can. U.S. Total 8,500 O 8,500

10,255 4,072 14,327

5,634 O 5,634

2,602 O 2,602

3,500 O 3,500(4)

4.51 2 O 4,512

193 O 193

O O O

The order of the companies is based of their 1987 total portfolio. ( 1 ) Olympia 8 York, an estimate based on numerous sources. (2) Cadillac Fa i~ew. (3) Brookfield assumed the omership of several office properties of several companies including Oiympia 8 York and BCE Development Corporation. (4) Globe & Mail, 2 May 1977. (5) An estimate of 1986 figures. Source: Annual Reports of Companies.

1987 Can. U.S. Total

13,000 27,000 40,000

14,1 05 14,070 28,175

8,370 6,960 15,330

5,100 10,000 15,100(5)

6,570 2,064 8,634

7,231 862 8,093

3,893 3,334 7,227

O O O

A combination of push-pull factors, including intemal characteristics and extemai contingencies,

resulted in a shift of the operations of Canadian companies from Canada to the United States in the

1970s and eariy 1980s (Goldenberg, 1981; Urban Land Institute, 1985). First, with a much larger

nurnber of urban 'markets' in the United States than in Canada, the U.S. provides more opportunities

for real estate development. For a country with a relatively small number of major urban centres,

Canada had produced a considerable number of large-scale developers. This in tum resulted in a very

competitive environment, and forced Canadian real estate companies to look for opportunities

elsewhere. Second, switching of capital into and within the real estate sector is not achievable without

the active participation of financial institutions. In contrast to banks in the United States, where banks

1999 Can. U.S. Total

O O O

14,118 50,162 64,280

14,323 O 14,323

23,139 1,243 24,382

O O O

O O O

O O O

9,047 15,504 24,551

are regionally based, Canadian banks have national and even international scope. These banks had

previous expenence of lending money to Canadian developen either through debt financing or thmugh

joint ventures. The branches of Canadian banks in the United States participated in ananging financing

for the development of office buildings and the expansion of Canadian-based developers into the

United States. Third, in many U.S. cities, planning regufations were bss rigorous than in Canada, and the previous experience of Canadian-based real estate companies in dealing with local rnunicipalities

and the complex process of development in Canada schooled them in the mechanism of local

planning. Fourth, unlike Canadian municipales, U.S. local authorities were able to attmct developen

by offering different types of incentives. The rise of urban entrepreneurialism (Leitner, 1990, 1994) and

the competition between municipalities f ~ r investment combined with the attempt to redevelop their

declining downtown areas has resuited in generous incentives to lure experienced Canadian-based

real estate developen. Finally, specific conditions in the United States made investment in real estate

attractive. Cornpetitive prices in the U.S. followed by a real estate decline in the mid-1970s made

expansion in the U.S. a sensible strategy (Goldenberg, 1981).

The investrnents of Canadian-based real estate companies in office buildings were mainly in

the fastest growing regions, namely Southern and Western United States. California and Texas were

the prime investment arenas. The principal cities for investment in office buildings were the major

centres within the oil and gas corridor, Houston, Dallas and Denver. Other cities in the Sunbelt, such as

Los Angeles and Atlanta, were also preferred investment arenas. The DallasFort Worth area illustrates

the role of Canadian-based companies. At the peak of the office building boom in 1989, three of the

largest Canadian companies, Cadillac Fairview, Bramalea, and Olympia 8 York, owned approximately

eight million square feet of office space in the Dallas-Fort Worth area. Wfih the exception of Olympia &

York. Canadian-based real estate developen have not invested in Manhattan, the hrgest office market

in the US. This market was at the brink of collapse in the mid-1970s as a result of the city's financial

malaise. In 19ï7, however, Olympia 8 York made a deal dubbed the 'deal of the century' (Foster,

1993) by buying nine office buildings in Manhattan for $350 million (U.S.). By 1981 the value of these

buildings had tnpled to $1 billion (Goldenberg, 1981) and by the late 1980s Olympia & York had

developed its largest real estate project in Manhattan, Battery Park City (including the World Financial

Center). At that tirne, the New York office portfolio of 08Y contained more than 24 millions square feet

of office space.

Following the 1990s real estate slump, rnost Canadian-based real estate companies have

totally withdrawn from the U.S. office market. A highly cornpetitive office market in the U.S. has

prompted Oxford to refocus on Canada as early as the mid-1980s, and as a result of restnicturing,

Cadillac Faiwiew was left only with its Canadian office portfolio by the mid-1990s. Other companies,

such as Olympia & York, Campeau, Bramaela, and Marathon went banknipt and other companies

absorbed their portfolios. A few companies have continued to focus on the United States. The majonty

of the office porifolio of the two largest Canadian-based real estate companies (TrizecHahn

Corporation and Brookfield Pmpeities) is in the US. This phenornenon indicates a differentiation

between companies. Bargain prices of high quality office buildings in the U S . have attracted

developers that were able to channel capital from other segments of the real estate sector into the

ownership of office buildings. TrizecHahn sold its entire U.S. shopping centre portfolio in 1998 and

shifted the proceedings to the acquisition of office buildings, mainly in the U.S. The collapse of their

Canadian counterparts in the early 1990s has provided the rneans for Brookfield Properties to becorne

the owner of one of the most prestigious office complexes in Manhattan, the World Financial Centre,

fomerly owned by Olympia 8 York.

3.3 Office Oevelopment and Foreign lnvestors in Canada In Canada, very little is known about foreign investment in the real estate sector in general and in office

development in particular. A few case studies provide limited insights into this arena. In this thesis,

findings on foreign investrnent in office development are based, to a large extent, on the absence,

rather than evidence on the presence of this type of investment. Intensive study of the office

development sector in Toronto has only revealed limited foreign participation in office development

projects.

Foreign involvement in office development in Canada predated the expansion of Canadian

developers into the United States. The first foreign real estate developers, mostfy British-based, to

enter Canada anived in the 1950s and 1960s and their operations included development of office

properties as well as the purchase of existing buildings and land. The withdrawal of most of these

companies in the mid-1970s resulted in a void of foreign investment until the late 1980s and early

1990s, when most of the new foreign real estate investon became buyen of troubled propeities.

In the 1960s and 1970s. British-owned companies were the most dominant foreign operators in

real estate in Canada. These companies included Trizec, MEPC, Bramalea, Rank. Abbey Glen,

Hamrnerson and Slough Estates. Foreign control took two forms. One was the London-based holding

company, which concentrated on ownership of income-producing pmperties. The other f o n was the

development company, which specialized in buying land and developing residential and commercial

pro perties. A num ber of foreignswned companies, in particular MEPC, Bramalea, Trizec, and

Hammenon were the most active firms in Canada in the last thirty years. The first foreign real estate

company to launch a Canadian operation was the British-based MEPC in 1954. By the 1970s, MEPC

Canadian Properties was one of the largest commercial real estate companies in Canada (in 1971 it

ranked seventh largest among public real estate companies) with properties (office, industrial and

retail) in most major cities across Canada. The company was a developer and an owner of real estate

properties as indicated by the president of MEPC '8asically we are an investment

company ... sometimes the investment market is diy and we have to build, but we prefer buyingn

(Building Development, December 1971, p. 14). The forerunner of Bramalea was fomed in 1957 in

order to change a rural area near the town of Brampton into the area known as Bramalea. In the late

1950s. a British syndicate bought the company (Bayton) and changed its name to Bramalea. Bramalea

was mainly a residential developer up to the mid-1970s. when Canadian entrepreneurs acquired the

company. In 1960, Trizec was formed to serve as a vehicle for the development of Place Ville-Marie in

Montreal. This singlepurpose company combined US. (William Zeckendoif, an American real estate

mogul) and British capital (Eagle Star Insurance). Trizec went on to develop other commercial

properties across Canada and in 1971 it ranked as the top publicly held real estate Company in Canada

in ternis of assets. Hammenon Canada, a subsidiary of Hammenon (U.K.) began its Canadian

operations in 1969. Hammerson focused on two Canadian cities, Toronto and Calgary. Its largest

project in Canada was the Bow Valley Square in Calgary. (Hammenon had also developed and

acquired office buildings in Vancouver.) In the mid-1980s, Hammerson bought the entire real estate

portfolio of a large Canadian developer (SB. McLaughlin). This portfolio consisted of a regional

shopping centre, a number of office buildings, and large land holdings, primanly in the suburban

municipality of Mississauga. This purchase made Hammenon the largest landowner in Mississauga.

f o some extent, other foreign investors and developers have been active in office

development. Two German-based companies, York-Hannover and Polaris, developed office buildings

mainly in Mississauga (Milner, 1991), and in other cities in Canada. In the early 1 9 9 0 ~ ~ York-Hannover,

together with a NorthYoik-based developer were planning an ambitious office complex in downtown

Toronto, but as a result of the 1990s recession it did not rnaterialize (Financial Post, October 7, 1992).

ln the 1990s, German investon bought a number of office buildings in Toronto's suburbs from troubled

Canadian developers (Financial Post, April 21, 1993). For example, they acquired an office building

from the largest office developer in suburban Toronto that went bankrupt (Inducon), and another office

building in North York City Centre from another developer (Bramalea). The only building developed by

a German investor in Toronto's Financial District was a relatively small building (100,000 square feet);

another building was in the Financial District renovated by German investon in the mid-1990s (Globe &

Mail, July 11, 1995).

Asian developers have been absent from office asvelopment in Toronto (even in Vancouver,

their prime target for real estate investment in Canada, they have mainly invested in tourism and

leisure-related activities, see Edgington, 1996a, 1996b). Two exceptional cases of Japanese

investment in office building in Toronto invohred aquisitions of partial ownership in office buildings in

the Financiaf District. In 1986, Nippon Me acquired a minonty interest in the Richmond-Adelaide

Centre and a year later, Mitsui 8 Co. acguired a 50-precent interest in an offne building on Adelaide

Street (Toronto Real Estate Board, 1988). In the mid-1990s, when the office vacancies in Toronto were

extrernely high and developers and ownen of office buildings defaulted on their loans, several Hong

Kong investors bought f i e buildings in Toronto's Financial District (Toronto Star, Decernber 29. 1994).

These buildings were older and smaller than the newer and larger office towers erected in the Financial

District. In the course of this research f was able to identify only one case in which Asian (Hong Kong-

based) Company was the developer of an office building in Toronto. Cheng Yu-tung, the chaiman of

one of the largest publicly traded real estate companies in Hong Kong, New Worid Devetopment, buiit

an office building in downtown Toronto (University Avenue on Dundas Street) in the eariy 1990s

(Financial Post, November 6, 1991). In the mid-1990s, Hong Kong investon bought controlling

interests in two Toronto-based real estate companies, Oxford Pmperties and Camdev (FManciaI Post,

August 7, 1996). In the late 1990s, Oxford became the hrgest owner of office space in the Toronto

metropolitan area.

In the 1980s, a trickle of new foreign investors arrived in Canada. In contrast to the first phase

of foreign participation in real estate, this phase invohred a smaller sale of foreign investment, a

different set of agents, and a change in the field of operation. In the 1970s, foreign investors were

involved in commercial real estate as active developers, primarily initiating developrnent of new

shopping centres, industrial buildings, and office structures. This almost disappeared in the 1980s as

foreign-owned companies moved into propeity trading (buying and selling), leaving development to the

Canadian fimis. One of the few exceptions was Prudential Insurance of Amerka. Prudential has been a

major agent (developer and owner) of real estate assets in the U.S., and by 1981 it was the fourth-

largest developer of tall buildings (over 25 stories) in the U.S. (Urban Land Institute, 1985). Prudential

ventured into real estate investment in Canada as well; its most pmminent office developrnent in

Canada was the Consilium Place in Scarborough (a complex of three buildings developed in the

1980s). When Prudential sold its Canadian real estate pomolio in 1997, it included 51 properties with

almost six rniflion square feet (Colliers, 1998). The U.K.-based Prudential Assurance was involved in

office development in suburban Toronto, through joint ventures with one of the largest suburban

developers, lnducon Development Corporation (Globe 8 Mail. October 1 1, 1 988).

Generally, foreign investors entering the Canadian real estate sector since the late 1980s have

been short-terni playen who acquired companies and assets or engaged in joint ventures. In 1987, a

consortium of U.S. pension funds, headed by the Chicago-based JMB Realty, acquired Cadillac

Fairview. ln addlon, opportunity-seeking investon (socalled 'vulture funds') moved into Canada in the

eariy 1990s to capitalize on its depressed real estate market (Globe & Mail, April 29, 1994). These

investments are the complete antithesis of the British investrnents, which were characterized by a long-

term perspective. In contrast, the perspective of the 1990s investon was short-terrn, attempting to

make a quick profit.

In the 1960s and the 1970s, foreign real estate developers were pioneen in developing large-

scale office buildings in Canada. The first massive injection of foreign capital and expertise into

commercial real estate in Canada was in the late 1950 and eariy 1960s with Trizec's Place Ville-Marie

project (over Smillion square feet) in Montreal. This was a project of a scale not seen in Canada

before, and it paved the way for other large-sale projects (e.g. the Toronto-Dominion Centre in

Toronto). Toronto's initial signifiant exposure to foreign developen was in the early 1970s, when

foreign-owned companies developed mutti-use structures, including two multi-use complexes (office

and retail) at the intersection of the two subway lines on Yonge and Bloor Streets. One of the first

large-scale office buildings in the suburbs, the Sheppard Centre in North York, was built by a British-

owned subsidiary (Rank City Wall Canada) in the mid-1970s.

In the mid-1970s a shift in foreign investment occurred as most of the major British-owned

companies disappeared almost completely from the Canadian arena (except for Hammerson) and

Canadian capital bought out their real estate portfolios. Two major reasons account for the British

pullout and the Canadian takeover. First, a decline in the real estate market in Britain in the mid-1970s

propelled many developers to seIl their Canadian real estate holdings to raise cash to be used in

Britain. Second, legislation at the federal and the provincial levels faced foreign real estate investors

with restrictions, and they started to have to pay higher taxes than Canadian companies (as a result,

some foreign companies becarne nominally Canadian, Milner, 1991). These events discouraged British

investors from investing in Canada (Canadian Buildingl June 1976; Canadian Business, October 1976).

The pullout of British-owned companies from Canada in the mid-1970s resulted in Canadian capital

buying out foreign-owned real estate companies. In 1974, Canadian money purchased control of

Bramalea from the British-based Eagle Star lnsurance Company (Canadian BuiMing, June 1976). Two

years later. English Property, sotd control of Trizec to Canadian investors (Goldenberg, 1981). MEPC,

the veteran of the British-based companies in Canada, sold its real estate portfolio to a group of

Canadian pension funds in 1977. In the kte 19Ws, the last big British-owned real estate Company,

Hammenon Canada, sold its offkehetail portfolio to a Canadian pension fund.

Two reasons may explain why foreign real estate companies were not involved in development

and ownenhip of office buildings at a large sale during the development boom of the 1980s. First, the

Canadian market became crowded and highly cornpetitive as additional companies joined the

development arena. The well-established, wellorganized, and closely-knit set of Canadian companies

overshadowed foreign companies (Kostin et al., 1989). This included the strong link between major

Canadian banks, life insurance companies and the largest real estate companies. Second, foreign

investment was also constrained because of the scarcity of suitable office properties for sale (Milner,

1991 ; Edgington, 1998). It has been argued that Japanese investrnent in North America showed veiy

little interest in Canadian cities, including Toronto and Vancouver (Edgington, 1996a. 1996b).

Japanese investon considered Canadian cities as second or third lier 'world class' cities, falling behind

cities like New York and Los Angeles (Edgington, 1998). In addition, domestic and other international

real estate markets were booming, so Canadian pmperty was only one of many investrnent

possibilities. 00th Asian and European investon were interested in Toronto's Financial District.

However, bamen to entry into this district, limited their involvement to buying smaller and older office

buildings; they were not able to purchase almost any large office building in the Financial District and

focused their efforts on the subuhs.

In general, there was little office development by foreign real estate companies after early

British expertise, entrepreneurship, and capital left Canada; the major f o n of foreign participation in

the 1980s and the 1990s was pnrnarily trade in office buildings.

3.4 ldentifying Primary Office Developers and Owners in the

Toronto Area The final purpose of this chapter is to identify the developers who are responsible for creating and

owning Toronto's stock of office buildings. So far this chapter has examined the real estate sector in

Canada at the national level. However, as argued in Chapter One, specific conditions are important in

shaping real estate development in any given location, and each crty has its local developen in

addition to developers that operate on a wider regional or national basis. By examining the Toronto

case, the role of national and local developers is demonstrated. For this purpose, identifying major

office developers in the Toronto is needed.

92

Several problems arise when attempting to identify the developen of office buildings in

Toronto. First, a considerable number of developen were entrepreneurs whose single office building

constitutes their sole office development. Since it was a one-of-kind development. other Yootprints' are

missing, and the ability to identw developen based on one building is extremely difficult. Second. most

of the developen were privatelyswned companies, which did not have to release information about

their ventures. Therefore, information was voluntariiy released, and is found mainly through extensive

scrutiny of media coverage (newspapen, professional magazines, and advertisements). Third, tracking

d o m the original developer of tradable commodities (real estate assets) is difficult, since office

buildings usually change hands. Finally, while one Company envisions an office development, it is

occasionally implemented by another. Adding to this problem of associating projects with respective

developers is the fact that ownership and partial ownership of real estate properties are common

practices. In these cases it is unclear whom to attribute the venture to: the initiator or the implementing

agent?

Compiling an inventory of Toronto's office buildings built between 1950 and 1999 preceded the

identification process. Using Royal LePage surveys of a l office buildings in the Toronto CMA, an office

inventory for Toronto was constructed. Office buildings, according to Royal LePage, include al1 office

space in buildings containing more than 20,000 square feet of net rentable area, most of which are

used for office facilities. The following sources were used to match office buildings to their respective

developers:

Annual reports of public real estate companies;

Advertisements in publications of real estate brokerage companies (e.g., Royal Lefage, Colliers);

Real estate professional newspapen and magazines (Real Estate News, Canadian

Builder/Building, Building Development, Building Management);

Real estate information supplien (Toronto Office Guide, lnsite Real Estate Information Systems);

News pape n (Globe & Mail, Financial Post, Financial Times);

Local newspapen and magazines including both articles and advertisements (Toronto Star,

Mississauga Business m e s , Mississauga Business Report Magazine);

City planning reports and office inventory surveys (Toronto, North York, and Mississauga);

Annual reports of the Canadian lnstitute of Public Real Estate Companies;

Popular literature on the real estate industry (for example, the history of the largest Canadian real

estate companies by Goldenberg, 1981, and the extensive documentation of the Olympia & York

story: 'Master Builders', 'Towers of Debt', and 'Too Big to Fail')

4 Printed matters and brochures of real estate companies;

4 Web sites of real estate companies; and

a Personal communication (intenriews).

1 was able to match approximately 400 buildings out of a total of 1200 buildings to respective

developerdowners. The resuit of the identification proces is presented in Table 3.6. It was impossible

to determine whether the owner was the developer of the specific building in some cases; hence, this

table shows both developen and owners of office buildings. In addition to the presence of nationally

diversified and well-established developers, such as Cadillac Fairview and Olympia 8 York, several

locally based developers like Inducon, Menkes, and Orhndo make up the second tier of developen.

Until the eariy 1970s. office space was being rapidiy added to the office stock by only a handful

of developen who owned considerable office portfolios. Most companies actually developed the office

buildings that they owned. Four companies stand out as the hrgest developen of office space in

Toronto before 1971. Wiih the major o f f i i cornplex, the Toronto-Dominion Centre, the largest was

Fairview. The most experienced developer of office space in Toronto (active since in the 1920~ )~ Y&R

Properties, had a major stake in office development. The operational space of both Fairview and Y&R

was in Toronto's 'old office district', the area south of Queen Street (in 1976 designated as the

Financial District). Olympia & York, which was in the midst of office development of its Flemingdon

Park property in North York and the eariy phases of development in Toronto's downtown, was ranked

third. The fourth of the largest companies was Manufactures L ie (later known as Manuiiie Financial), a

life insurance Company with an active role in office development. Other developers were significantly

srnaller in ternis of number and size of buildings they developed.

Between 1971 and 1981, Toronto's office space doubled, and o f f i i development was diffused

among a larger nurnber of developers. In 1981, Cadillac Fairview and Olympia 8 York remained by far

the largest developen in Toronto. However, several additional companies became significant players in

this sector. In the late 1970s Oxford Development Corporation acquired Y8R Properties to become the

third largest owner of office buildings in Toronto, while Trizec and Marathon Realty entered the Toronto

market. Several residential developers, such as Bramalea Limited, Menkes Developments, and the

Shipp Corporation ventured into office development during the l98Os, while other suburban developers

diversified their operations from industrial to office development (Inducon and Orlando).

During the 1980s. Toronto experienced its most signifiant growth of office space in absolute

terrns. The cornpletion of approximately 70 million square feet of office floor-space between 1981 and

1991 involved the participation of a greater number of developers and the expansion of existing

companies.

Table 3.6 The largest ownen of office space in the Toronto Area, selected years. 1971-99 ('000 square feet)

Developer 1 971 1981 1991 1999 CadiHac F a i ~ k w Corporation (1) 3,000 5,100 7,500 9,250

Olympia & York Developments (2)

lnducon Oevebpment Corporation

Bramalea Lirnited

Brookfield Properties Group (3)

ClBC Deveiopment Corporation (4)

Manulife Financial

Royal Bank

Marattion Reaity

H&R Developments (5)

Sun Life Financial

Oxford Properties Group

Menkes Developments

Shipp Corporation

Orlando Corporation

TrizecHahn Corporation

Harnrnerson Canada

Y&R Properties

Total 9,100 24,650 47,100 16,050 Total office space in Toronto 35,600 73,800 142,100 146,300 % accounted for 26.4 33.4 33.1 31.5 Notes: The order of companies is based on the 1991 portfolio. N/A - not available. (1 ) The 1971 portfolio includes the combineci portfolio of F a i ~ e w and Cadillac. (2) The successor of Olympia 8 York, O&Y Properties was formed in the second haif of the 1990s. (3) The 1991 portfolio includes the portfolio of BCED. (4) ClBC developed the Commerce Court compfex in the early 1970s; however, the real estate subsidiary, ClBC Development Corporation, was formed in 1989. (5) In 1996 most of H&R Developments properties were acquired by H&R REIT. Source: See text.

In 1991, the top position was still occupied by Cadillac Faiwiew and Olympia & Yoik, but they were

followed by a senes of signifiant medium-sued developen. Bramalea and Marathon, for example, as

well as sorne suburban-based cornpanies (Inducon, W R Developments, Menkes, Shipp, and

Orlando), ernerged as important developen in the 1980s.

Over the course of the 1990s, however, there was a shift back to the concentration of office

property ownenhip into a small number of hands owing to either bankniptcy or the selling of portfolios.

Firms such as Olympia & York, Inducon, and Bramalea disappeared after the early 1990s, and the

portfolios of Marathon, the Royal Bank, and Shipp were sold to other companies. Cunently, the largest

owner of office space in Toronto is pnrnarily a buyer of office properties. Oxford Properties Group

developed only 5 percent of the office space it owned in 1999 in the Toronto metropolitan area: the

major part of Oxford's office portfolio was acquired in massive waves of purchases executed mainly in

the 1996-99 penod. Brookfield Properties acquired control of BCED after the collapse of the real estate

market in the early 1990s, and as a resuit inherited its portfolio, which includes one of the largest office

complexes in Toronto, BCE Place. In addition, it acquired control of selected properties owned by

Olympia 8 York. Among the top-tier companies, Cadillac FaiMew remained thé only owner of office

space who had actually developed the rnajority of its holdings. Among the financial institutions,

Manulife Financial has been the major developer of office space in Toronto. Privately owned

developers, such as Menkes and Orlando were able to survive the 1990s collapse and continued to

hold and develop office properties through the late 1990s.

3.5 Unpacking Real Estate Developers Some general insights regarding real estate developers can be drawn based on the descriptive

staternents made above. The conclusions of this chapter are interpreted at two levels: defining

developers, and frarning their changing characteristics Unpacking the term 'real estate deveioper' is

the first task. Real estate development and investment is a complex business venture consisting of a

multitude of arrangements and practices. lnstead of understanding real estate developen as

perfoming only one function, their role shouM be broken down into major componentç, which can be

situated along an 'investment continuum'. The major factor underiying the construction of this

continuum is the degree of nsk exposure. This role is divided into four core functions ranging from the

Ieast exposed to the most risk-exposed ventures. The four functions are as follows.

a At one end of the continuum, at its least risky side, stands the develomr for a fee ('Manager'). This

type of developer has the least risk involved in a real estate development, since the

investor/owner/user a m g e s the financing for the projec?, and the developer has no equity in the

property. Generally, the developer has almost no capital at stake because the investor will pay the

development fee no matter whether the project is successful cr not (fully or partially leased). This is

the case when the developer for a fee is short of cash, and does not have sufficient capital to

invest in the project, or when shehe is chosen to act as manager in the development process

which was already conceived by another organbation.

Real estate companies tend to perform a number of functions simultaneously. For example, Y&R

was the developer for fee for the Royal Bank Plaza in Toronto's Financial District, and Cadillac

Fairview was the developer of the CBC complex in downtown Toronto and the head office of

Hewlett-Packard in Mississauga.

O Investors in real estate companies ('lnvestorsl) are more exposed to nsk than developers for a fee,

because they have equity invested in these companies. The prime incentive to invest in real estate

companies is to receive dividends that are based on the company's performance, usually

influenced by cash flow and the market performance of the company (its stock value). The capital

gains of this group depend on the performance of the entire real estate portfolio of a specific real

estate company. Since publicly listed real estate companies have divenified po~olios, the risk is

usually spread across a multitude of properties and locations. In a depressed real estate market,

when the value of the company's shares is less than its total real estate porffolio, it is often more

profiiable to buy company shares instead of real estate properties (individual or packaged). The

price of a building is based on its appraised value, whereas buying shares is based on the market

capitalization. which in the case of a depressed real estate market might not reflect the full value of

the companyls assets. Cornpanies that fit this category of investors include primarily pension funds

and life insurance companies.

O Buven of existina ~rooerties ('Buyers') incur more risk because their equity is tied to a particuhr

property or several properties. Buyen of real estate properties expect to gain through the cash flow

generated by the respective propetlies: the income Stream which is based on the property's rental

rates. Since real estate assets are divisible in terms of ownership, the ownenhip of buildings can

be divided between a few investors. The larger the ownership interest, the higher the risk, but in

tum, the potential retum is also higher. Buyers that acquire fully leased properties with creditworthy

tenants are subject to less risk than buyers of partially leased buildings.

Most of the real estate companies are both buyers and developen of real estate properties at the

same tirne. At certain times they prefer to buy and in other penods they develop. In the 1990s.

when almost no development was undenvay, companies engaged in buying and selling office

buildinçs. The most prominent and aggressive buyer of office buildings in Toronto in the 1990s was

Oxford Properties Group, which increased ih office floor-space in Toronto seven-fold between

1995 and 1999. In mid-2000, the brgest Quebec pension fund acquired from Trizeciiahn the

largest office complex in Montreal (Place Ville Marie).

a The most risk-exposed group of investors is the ownerdevelo~ers ('Developers'). This type of

Company, similar to 'investoa' and 'buyen', retains equity in properties, but in addition, it has to

incur the nsk of not leasing in full the property that is under construction. The major incentive for

developen to engage in development is to obtain the development profit, which is the difference

between the initial outlays for a project and its value upon cornpletion. A property that is under

construction experiences the highest degree of risk Wii in this category, speculative developen,

developers that launch a project with no tenants committed for at least portions of the property, are

exposed to the highest degree of risk. This risk can be reduced through some pre-leasing, that is,

leasing parts of the property before construction starts (a common requirement of the lending

institutions). Uncertainty enhances risk, but at the same time increases potential gains if the

property is fully leased. By taking partnen, co-developen have partial ownership of properties,

therefore, risk is proportional to their ownership interest. Soiedevelopers have the ownership

majonty in a property, thus they are subject to the rnajority of risk related to the property or

properties under construction.

During the 1970s and the 1980s, when Toronto experienced a constant process of office

development, most of the real estate companies were acting as developers. To name a few, they

included Olympia & York, Cadillac Fairview, Marathon, lnducon and Menkes.

The last type of developer epitomkes the traditional developer. The real estate developer gathers

together the necessary resources for and orchestrates a particular type of development in order to

satisfy an existing or anticipated demand for a specific type of property. Hekhe acquires sites for

developrnents, organizes building plans, obtains finance, acquires planning permission, arranges

construction, and the leasing or sale of the property (O'Malley, 1989). An organization can perfom one

or more of these functions at the same time, or switch between these roles. The type of risk can Vary

between different projects; in one development the organization can act as the project manager.

whereas in another venture the organization assumes the role of ownerdeveloper.

Another level of generalization concerne the intemal development of real estate companies.

The intemal development of real estate cornpanies is strongly related to their prior experience. Most

office developers can trace their beginnings to the construction of nlatively small, less complex

projects. Through the experience in the production of residential or industriallwarehouse projects, an

organization diversifies, expands, and begins to tackle more complex land uses which consume

considerable financial resources and invoives higher levels of expertise. The emergence of most real

estate development companies specializing in office development is aîtributed to reaching a level of

'fully developed' companies. O K i development of a considerable sale is an advanced type of real

estate production, and only highly experienced and well-financed organizations can be in this business

on a regular basis.

The office devekpment sector is intertwined and embedded in the more broadly defined

operations of real estate devekpment companies, which include development and

acquisitionldisposition, and other products, such as industrial, retail and residential assets. Specifically,

the development and ownenhip of office space becarne a major segment of assets of the publicly held

companies. Office development has also contributed a growing share to the portfolios of privately held

companies as they divenified into office development. In Canada, Canadian-based real estate

cornpanies have been the major developen and ownen of office space, whereas the role of foreign

companies has been relatively marginal. A general tendency of the office development sector over the

last forty yean has been a gradua1 transformation from entrepreneurial-based companies to large real

estate corporations and finally to a sector thît is now increasingly dominated by large institutional

investors.

Over this time period, and especially between the early 1970s to the late 1980s, Canadian-

based companies have emerged as sizeable organizations operating across Canada, as well as at the

international arena, mainly in the United States. Large real estate companies expanded their spatial

extent from being relatively local companies operating in selected markets, to companies that cover

major urban centres across Canada, and selected centres in the United States. Nonetheless, their

spatial operations were channeled ta selected urban centres.

Within the local scale, the large Canadian-wide office developen are also the largest

developen in the Toronto area. However, in Toronto, a substantial amount of office space has been

developed or owned by local real estate companies. These companies have different operational

spaces within the Toronto arena than the large developers (as suggested in the Introduction; see

Figure 1 and 2). Financing office development is examined in Chapter Four, and a scnitiny of the

spatial practices of real estate companies is analyzed in detail in chapters Five and Seven.

CHAPTER FOUR

FlNANClNG OFFICE DEVELOPMENT AND THE

ROLE OF FINANCIAL INSTITUTiONS

"Developers will develop as much as lenders will lend"

(A reai estate industry observer)

"Financial institutions are more important in this business [real estate] than in any other business"

(A real estate industry observer)

Financiat capital, through the specific financial institutions, such as banks and life insurance

companies, plays a crucial role in real estate development in general and office development in

particular. The literature discussed previously (section 1.2.2) has drawn attention to crucial connections

between real estate development and the financial sector. It is quite clear that developers rely on

extemal financing, and it is also clear that finance capital is showing different faces since it can act as

lender, engage directly in real estate development, or engage in the purchase and sale of developed

office properties.

The broad connections between real estate development and the financial sector visible in a

variety of countries can also be observed in Canada. Based on the literature and specific research on

Canada, a general pattern of relationships between financial institutions and real estate developers can

be constructed (Figure 4.1). Developers' equity or debt is raised from various sources (financial

institutions, other extemal sources andlor capital markets).

On the other hand, financial institutions can either be indirect participants by providing debt

capital through different instruments, or be developers andlor owners of properties. Financial

institutions can becorne property ownen by buying properties (or acquiring them through the default of

bonowers), by joining developers on a joint venture basis, or by becoming developers themselves.

This chapter will focus on the specific articulation of these connections in Canada. Part of the

set of relationships is spatially differentiated, especially visible at the national level, but also at the local

level. Less clear are the spatial patterns of financial flows at the international scale. Further, the

principal relationships and their spatial manifestations tend to change over time.

OTHER 1 EXïERNAL MARKETS

Equity/ Partnership

Repayment Debt

DEVELOPER

Defauit (Foreclosure)

Repayment

FINANCIAL

INSTlTUlION

Equity

FINANCIAL

INSTITUTION AS A 1 1 DEVELOPER 1

Debt (Short terni/ Long term)

Figure 4.1 : Connections between financial capital and real estate developers

There are f i e parts to this chapter. First, an overview of the relationships between the Canadian

financial system and the real estate sector are sketched. The particular financial structure in Canada

shapes the type and sape of involvernent of financial institutions in real estate. Second, an outline of

financing office development from the perspective of the office developer is provided; that is, an

attempt will be made to show what sources of financing developen draw on. The third section provides

an analysis of the financial institutions, primarily banks and life insurance companies, explaining their

various types of participation in office development. The spatial practices of financial institutions are

discussed in section four. Finally, a preliminary sketch of the role of international capital in real estate

developrnent is presented.

4.1 The Configuration of the Canadian Financial System and the

Financial Arrangements in the Real Estate Sector As real estate developments increased in site, complexity and cost, and as new financial instruments

emerged, financial arrangements have become a more critical element in real estate development (and

in the trading of real estate assets). The finite amount of equity owned by real estate companies, the

desire to share the nsk embodied in development, and the eagemess to invest in multiple projects, has

contributed to the growing dependence on financial sources from outside the real estate Company. For

this reason, it is important to understand the structure of the financial system which real estate

development draw on.

Until recently, the Canadian financial systern had operated under a regulatory regime defined

by the 'four pillars'. Each core function of the financial system, with its own financial institutions and

regulatory authority, constituted a 'pillar'. Chartered banks, trust companies, insurance companies, and

investment dealers operated under rules that defined their activaies nanowly and allowed no overlap.

Chartered banks, for exampte, could accept short-term deposits and provide business loans. The

securities industry participated in transactions of secondary equities and underwrote new stock issues.

Trust companies managed estates and trust funds and provided mortgage financing. Insurance

companies sold insurance policies. With every review of the Bank Act (between 1954 and 19971,

cornpetition was encouraged and demarcation lines between 'pillars' have became increasingly bluned

as individual financial institutions extended the range of seivices they were allowed to provide (Dobilas,

1996; Majury, 1999).

Within this framework, each of the components of the financial system has a unique role with

respect to real estate development Trusts companies have been primarily engaged in the provision of

residential mortgages, although, occasionally, they have been invoived in commercial development (for

example, Canada Trust provided a rnortgage for First Canadian Place). lnvestment dealers, including

financial analysts, have a different role. F int they act as stock traders and underwnten, and enable

raising capital for real estate companies and real estate projects. In addition, financial analysts that are

part of the investment firms provide recommendations and analyses of the performance of publicly

traded companies. Fimis like Memll Lynch, ClBC Wood Gundy, RBC Dominion Securities, and Nesbitt

Burns monitor, on a regutar basis, the performance of publicly traded real estate companies and make

recommendations regarding the performance and outlook of these companies. The most important

institutions of the Canadian financial system for the commercial real estate sector, however, are banks

and iife insurance cornpanies.

Financina new deveio~ment

Very little has been written in Canada about the principal methods of real estate development financing

by banks and insurance companies. However, there are some useful discussions on practices in the

United States (Knigrnan and Furiong, 1993; Downs, 1998; Urban Land Institute, 1998) and the United

Kingdom (Pryke, 1994a); these are used as starting points. M e n considering the financial sources of

real estate investment, the distinction between debt and equity is important. Generally, debt financing is

either through short-terni loans (construction loans) or through long-temi loans (in the real estate

industry the term is 'permanent loan'). In the case of debt financing, the lender has no interest in the

property. Equity investment on the other hand, represents a stake in a specific project or in a real

estate Company. Debt and equity investors differ in the amount of risk they accept. Consequently, they

require different levels of retum. Debt investors generally are more risk averse; they are less willing to

invest in risky projects. Lenden usually provide the majonty of financing for completed developments

that have creditworthy tenants secured by long-term leases. W i rental income streams in place,

backed by financially sound tenants, such properties have a iow-risk profile. Equity investors invest in

riskier projects, or in risky portions of projects, but they require a higher rate of retum on these

investments. The interests of the equity investors are subordinate to the clairns that lenders have on

the venture's assets; therefore, the outstanding debt on the project will be always paid in full before

equity investon receive any retum on their investment. mus, equity investment in a real estate project

is much riskier than debt investment. When the property performs poorly, equity investors are in the

riskiest position. But when it performs well, they receive benefiis in the form of cash flow generated by

the project, property value appreciation, and tax advantages.

Historicalty, the primary sources of long-terni debt financing (permanent loans) for office

development have been life insurance companies and pension funds, with commercial banks playing a

limited role. Life insurance companies tend to provide long-ten mortgages (15-30 years) on leased

buildings in order to match their long-terni liabilities. Much of the principal balance is amortized during

the life of the mortgage. Life insurance companies are able to invest large sums of capital in long-tem

mortgages, because their cash flow is contïnuous and predictable. They receive a constant flow of

funds from premium payments, and can accurately predict their future outlays from actuarial tables

(Krugman and Furiong, 1993; Urban Land Institute, 1998).

Commercial banks traditionally have been the primary source of construction financing. Banks

have avoided long-term real estate mortgages, because the matunty of such loans has not matched

the short-term duration of their primary liabilities. Large portions of banks' deposits take the form of

demand deposits payable on the demand of the depositor. Hence, bank funds must be more liquid than

those of other financial intermediaries, and they have concentrated their investment in construction

funding, which also has a relatively short-terni matunty (Krugman and Furiong, 1993; Urban Land

Institute, 1998). Traditionally, banks have refused to make a construction loan on a new project unless

the borrower proved it had a long-terni mortgage cornmitment that would take the bank out of the deal

when construction was completed. In their eagemess to get business, especially in the 1980s,

however, banks began making construction loans without takeouts (long-term financing) in place,

extending the duration of construction loans into periods nomally associated with long-term mortgages

(Downs, 1998).

Developers usually arrange the permanent financing before they seek a construction loan.

When a permanent financing commitrnent is in place it is much easier to obtain a construction loan.

Thus, a takeout cornmitment impraves the construction lendets risk position. The interest rates on

construction loans are typically higher than on permanent loans, giving the developer an incentive to

replace the construction loan as soon as possible. In addition, in the case of bank short-term loans, the

bank might ask for the repayment of its loans at any given time, or the disposal of the propeity, while

long-terni financing is protected for the developer, as long as principal and interest are paid. This

division of labour between financial institutions resub in different financial arrangements conceming

development and investment in office buildings.

The financina of acquisitions

Apart h m banks and life insurance companies, pension funds have assumed an increasing role in real

estate financing. As noted in Des Rosiers' study (1984) on the participation of Canadian life insurance

companies and pension funds in the real estate sector, real estate investrnent represented a small

fraction of only about one percent of their assets until the late 1970s. However, Des Rosiers also

obseived the phenomenal growth in real estate investment by pension funds in the late 1970s and

early 1980s. Basicaily, there are two ways pension funds can invest in real estate: for their own

account or through pooled funds (most of the pooled real estate vehicles in Canada started in the eady

1 980s). Pooled funds (segregated funds) are investrnent vehicles organized by life insurance

companies or financial managers. Pension funds buy shares or blocks and the prmeds are invested

in real astate (Canadian Buiiding, October 1985). Generally medium and small pension funds either do

not have the expertise needed for engagement in real estate ownenhip or they are simply too small to

acquire properties and prefer to share ownership of properties. These pension funds use segregated

funds that acquire assets for the account of a pool of investors in order to invest in real estate.

Beginning in the eady 1990s. the large pension funds have been the most active financial

institutions in the real estate sector. In 1989, OMERS (Ontario Municipal Employees Retirement

System) formed a real estate subsidiary, OMERS Reaity, and began to acquire pmperties across

Canada (Canadian Business, November 1996). After the early 1990s real estate recession, many

pension funds took advantage of depressed prices of the shares of public real estate companies,

expecting thern to increase in value. In Ontario, legislation allowed pension funds to invest in riskier

assets such as stocks, bonds and real estate (Globe & Mail, October 1, 1991). This made it possible for

one of Canada's largest pension funds, the Ontario Teachen Pension Plan Board, to acquire a 22

percent interest in the Cadillac Faiwiew Corporation, the third largest public real estate company in

Canada. Other pension funds also acquired equity stakes in major real estate companies. The largest

Canadian pension fund, Caisse de depot et placement du Quebec, acquired a 73 percent equity stake

in of one of the largest shopping centre owners, Cambridge Shopping Centres, and 48 percent of a

Vancouver-based commercial development company, the Bentall Corporation. OMERS has become

the largest single shareholder of Oxford Properties Group (Globe & Mail, December 3, 1999).

Life insurance companies and banks, apart from acting as financial intermediaries (i.e. lenders)

also act as investors in and developers of office buildings. The most active financial institutions in this

respect are life insurance companies. Until the 1970s, life insurance companies in the U.K. largely

pursued the traditional form of investment in real estate, fixed interest mortgages. These were and still

are considered to give a guaranteed retum while not invohring the institution directly in real estate

development. However, realizing potential gains of real estate investrnent, life insurance companies

have shifted more of their assets to direct investment and devekpment (Barras, 1979b). In Canada,

until the 1970s, life insurance companies were mainly debt providen. Beginning in the late 1970s and

gaining momentum in the 1 9 8 0 ~ ~ life insurance cornpanies realized that real estate development

companies were making large profis; as a result they engaged in direct investment through equity

investment in office buildings and in acting as devekpers (Financiai mes, October 31, 1983).

The participation in equity investment can be d ided into ownenhip of assets, joint venture

development, and development solely by Cnancial institutions. In the first phase of their involvement in

the real estate sector, institutions, primarily life insurance companies, tended to acquire partial or full

interest in existing office properties. This is the least risky business, because the building is cornpleted

and the level of occupancy is known. In this case, financial institutions profit from the rental income of

these properties and their appreciation. The next step is teaming up with an experienced real estate

developer. Joining developen in this case is a prudent move, since real estate development involves

expertise that most financial institutions lacked. Under this arrangement financial institutions and

developers shared the risk of development, and in addition to sharing the rental stream and capital

appreciation, they profited from the development gain (the diffennce between the cost to build the

project and its value after completion). The most extreme move as far as financial institutions are

concemed, is to becorne sole developer. This practice is limited to a small number of large financial

institutions; this is the riskiest business, but also potentially the most rewarding. In this case, financial

institutions can collect the whole development gain, and be in full control of the development.

The last route of acquiring office properties to be discussed is the route of foreclosure. When

bonowers fail to service their debt and default on their mortgages, lenden are entitled to foreclose the

propeity that was used as collateral. This is typically the case when rents are low and vacancy rates

are high, and it is typically the lender's last resort of claiming hisher loan. Lenden are reluctant to start

foreclosure proceedings that can take a long time and eventually become a liability on their balance

sheet. By foreclosing properties, financial institutions become unwillingly property owners. Generally,

institutions hold foreclosed properties for the short-terni, disposing them as soon as possible. This was

the situation during the real estate recession of the early-to-mid 1990s. The value of foreclosed

properties held by Sun L ie Assurance Company (one of Canada's largest life insurance cornpanies)

doubled between 1993 and 1995 from $42 to $83 million. However, in 1997 it declined to $46 million

and by 1999 to $24 million, as a large part of these properties was sold (Sun Life Assurance Company,

various Annual Reports).

In observed practice, most of the equity invested in real estate by life insurance companies is

through the acquisition of full or partial ownenhip of completed projects. Life insurance companies take

ownership position in existing properties and not in properties under construction. The risk invotved in

such a property, especially speculative development, and the need to potentially incur short-term or

long-term losses, is too risky for these companies. Only a few of the brgest companies have become

active playen in the area of direct development, either through joint ventures of by being sole

developers.

4.2 Sources of Financing Office Development: The Developer's

Perspective Information on the financial sources used for office development by real estate investon that are also

financial institutions is difficult to come by. The cornpetitive nature of real estate development and the

fact that the paiticipants do no! have to report on their ventures makes the sources of finance highly

confidential. As indicated in the previous financing is divided into two types: agurty and debt.

The focus of the real estate literature is on debt financing, and the general nile is that banks provide

short-ten financing and life insurance cornpanies provide long-tem mortgages. In tens of debt, very

little is known about the specifii of loans to real estate companies as a whole. Equity financing, in

which investors acquire interest in office buildings, is also hrgely undocumented. To explore the issue

of financing, information on a number of companies is used here. These examples include evidence

from a variety of newspaper aiticles, annual reports, and interviews conducted in the course of my

research. These observations do not provide a comprehensive account. Nevertheless, together with

insights gained from international literature on office development financing, they provide important

insights into this highly secretive part of real estate developrnent.

The high dependence of the real estate sector on boirowed capital is reflected in a cornpanson

of real estate companies al1 other companies. In Canada, real estate companies (as defined by

Statistics Canada, see section 3.1) employ higher ratios of leverage than al1 industries as a gmup. The

debt-to-equity ratio is used to illustrate this dependency. The debt-to-equity ratio is the ratio of total

liabilities to total equity. The higher the ratio the higher dependency on debt. While al1 industries had an

average ratio of three, real estate companies had a ratio that ranged between four and almost six

(Table 4.1).

The case of Olympia & York is often used to illustrate the divene and multinational resources

available for real estate cornpanies; however, large sale and spatially diverse developers and smaller

and local developen use different sources of financing. As argued by Bryson (1997), the financial

requirements which large and smaller developen have to accommodate are different; h i l e large-scale

developers need to obey the requirements set by capital markets, local developen need to satisfy only

the cost of conventional bank loans.

Table 4.1 Debt-to-equity ratio, al1 industries and real estate, setected years. 1971-96

Year All industries Real Estate

Sources: Statistics Canada, Corporation Financial Statistics, Catalogue No. 61 -207; Financial Statistics for Enterprises, Catalogue No. 61 -21 9.

Smaller developen engage in less capital-intensive ventures, thus using less complicated and more

tradlional sources of financing; large-scale developers, on the other hand, have to combine several

sources and satisfy the conditions attached to these types of funding. In the same vain, Des Rosiers1

study (1984) on Canadian life insurance companies and pension funds suggests high dependency of

developen on these institutional investon. In this case, the granting of funds was heavily dependent

upon meeting rental requirements and profitability thresholds set by life insurance companies and

pension funds (Des Rosiers, 1984, p. 667).

Des Rosiers (1 984) undertook the most comprehensive study on financial institutions and their

real estate investment in Canada. He showed that the majority of the corporate funds of real estate

companies in the period of 1968 to 1981 came from external sources (this pattern continues to

dominate in later periods too). Using a sample of 31 real estate companies of different sires, he

concluded that external funds constituted between 75 and 88 percent of the corporate funds. About haIf

of the total funds were deriied from long-term debt and approximately 20 percent from short-terni debt.

The prominent external sources of long-tenn finance were mortgage loans from life insurance

companies and pension funds. This research is the first of its kind providing empirical evidence

regarding financing of real estate in Canada. However, Des Rosiers grouped together different types of

real estate companies, hence it is not possible to separate residential developers from commercial

developers. Although making a distinction between different types of developen according to the risk

associated with investrnent, he does not use this distinction to demonstrate how it affects the reliance

on different financial sources. In addition, he suggests that preferential links' between developen and

lenders detemine financial parlnenhips (p. 662). but he does not develop this argument. In order to

discover these preferential links, selected practices are studied in this research.

4.2.1 Olympia & York: Social networks, ingenuity and the provision of

financing

Olympia & York (O&Y) grew from a small company into a real estate giant; parallel to this development,

its sources of financing changed. After the company's colbpse in 1992, a window of opportunity for

understanding the practices of real estate financing was open, because information of the financing

arrangements of the world's largest developer were revealed. These sources include court documents

of the bankruptcy proceedings, reports on the unprecedented debt of O&Y that caused massive losses

for almost ail major Canadian banks (and foreign banks as well), and the public fascination of the rise

and fall of this real estate empire.

However, to understand the financial practices of Olympia & York we have to go back to the

cornpany's early days. In its eariy stage in the 1960s. O&Y was a developer of warehouses and

industrial structures in the Toronto suburbs. At that time, the practice of OBY was to develop and then

seIl the buildings to speclic usen. Since most of the buildings were small, no major financial

arrangements were needed. In its first large-scale real estate development, the purchase of 600 acres

(Flemingdon Park in the Borough of North York) in the mid-1960s, O&Y had to bonow the full amount

of capital to finance this project. Half of the amount came from the Bank of Nova Scotia, which was one

of the lenders to the banknipt U.S. developer, who was the previous orner of this site, and the other

half came from the Oelbaums, a Toronto family prominent in the development business (Foster, 1986,

p. 1 9; Stewart, 1993, p. 43).

Like every developer, Olympia & York financed its office buildings with a short-terrn loan

obtained from a bank and then refinanced its office buildings through a long-tem mortgage obtained

from a I le insurance company. In the 1960s, a dramatic change in financing took place as O&Y started

to use a new technique of mortgage bonds. A small Toronto investment dealer, specializing in bond

financing, pioneered a technique that enabled Olympia 8 York's to cut financing costs by accessing the

bond market, which until that period, had been almost the exclusive domain of top-rated govemments

and corporate credits. The innovation of this method was the 'net net lease', which obligated the tenant

not only to pay rent, but also cover al1 operating costs. Under this type of lease, the only financial

exposure was that a tenant would go broke and be unable to live up to its lease obligations. But if the

tenant was a govemment agency or a triple-A corporation, the risk of default was slim. This investment

dealer was able to convince several institutional investors that there was no real difference between

buying bonds floated by an established company or buying first-mortgage bonds issued by a developer

and backed by the a 'net net lease'. This instrument was advantageous from two points. First, it

allowed developen to borrow at a substantially lower interest rate Vian with conventional long terni

financing. Second, it extended their leverage by enabling hem to obtain loans of as much as 100

percent of the appraised value of the building, instead of a maximum of 75 percent to which insurance

companies were limited by law (Bianco, 1997).

Using first mortgage bonds, Olympia & York financed some of its office buildings in Canada.

The case of the Shell Data Centre built by O&Y in Flerningdon Park in the mid-1960s is used to

illustrate this point. O&Y was able to persuade Shell to pay above market reds by granting the

company an option to buy its building at a price that declined to zero over the twenty-fie year duration

of the lease. The value of the Shell Canada lease was $3.3 million, while the cost of the building was

$2.5 million. By issuing $3.3 million in first-mortgage bonds, O&Y was able to pay off highcost

construction loans with cheaper debt and have an excess of $800,000 (Bianco, 1997).

For the purchase of the Star Building, part of the site of the future Fint Canadian Place, 0 8 Y

forrned a joint venture with a financial institution, North American Life. The construction financing of

O&Y's largest office development in Toronto, First Canadian Place, was partly financed through

retained eamings from other projects and from a consortium of Canadian banks led by the Canadian

lmperial Bank of Commerce. The long-ten mortgage for the project was issued by Canada Trust

(Stewart, 1 993; Bianco, 1997).

In later stages, OBY relied primarily on bank loans. public debt and commercial paper, usually

at rates available only to highquality corporate bonowen (Globe & Mail, March 26, 1992). O&Y was

one of a handful of real estate companies that were able to seIl commercial paper by using its

properties as collateral. In 1984, O&Y first issued short-terni debt to finance part of its inventory of

office buildings. O&Y launched a program of 30 to 90-day commercial paper notes to finance some of

its U.S. properties, because it believed that interest rates would decline. When O&Y collapsed, the list

of borrowers included major foreign and Canadian banks. The list of Canadian lenders included the

Canadian lmperial Bank of Commerce (CIBC), Royal Bank, the Bank of Nova Scotia, the Bank of

Montreal, the National Bank, and Canada Trust. Together they held about $2.5 billion (U.S.) in O&Y

debt (Globe 8 Mail, March 26, 1992).

The notion that access to large pools of capital by real estate developers is restricted and

highly confined to selected real estate companies is illustrated by the case of Olympia & York. Access

to capital is facilitated through an extensive social network obtained thmugh a variety of accumulated

encounten. In their first large project, the acquisition of Flemingdon Park, the Reichmann's, the ownen

of OBY, a Toronto-based family, used a connection with another prominent Toronto family. In the case

of the purchase of the Star Building, Paul Reichmann had previous connections to one of the senior

executives of North American Lie. Among Canadian banks, Olympia & York had established long

lasting and very strong ties with the Canadian Imperia1 Bank of Commerce. 08Y began dealing with

ClBC in 1956 and eventually, in 1986, Paul Reichmann was invited to join the ClBC board (Foster,

1993). Even after ClBC endured a giant loss as a result of the collapse of O&Y in 1992, ClBC was

willing to provide b successor, 0 8 Y Properties, with over $ 2 0 million to reclah the ownenhip of the

First Bank Tower in the First Canadian Place office complex (Globe 8 Mail, August 6, 1999).

4.2.2 Corporate size and real estate financing

Information on many of the financial sources used by a wide range of real estate companies was

revealed in the eariy 1990s. At that tirne, many of the real estate companies went through major

financial difficulties, which resulted in court deliberations and the diffusion of information to the media.

However, the financial sources for small and medium-sized companies are less well known. Since

smaller and medium-size companies are usually privately held, knowledge about their financing

practices is largely inferential. Some examples and fragments of knowledge about the sources of

financing can be provided here. The North York-based developer Cammst Development Corporation

lost control of its major office building to Sun Lie in 1994 as a result of missing several mortgage

payments. (The total mortgage obligations amounted to $60 million). Sun Life owned the majonty on

the mortgage of this project. In addition, the Toronto-Dominion Bank had a mortgage on another office

building developed by Camrost (Financial Post, March 8, 1994). A similar case is provided by the

affairs of the York-Trillium Development Group. This North York-based developer used mortgage funds

from Confederation Life and Canada Trust for the acquisition of the land for the York-Mills Centre in

North York (Globe 8 Mail, July 30, 1991). The bankruptcy of one of the largest suburban developers in

Toronto, lnducon Development Corporation. in 1992, also provides soma indication of the sources of

financing used by a mid-sized Company. According to couit documents, lnducon owed money to a

large number of creditors, including many of the largest banks and life insurance companies. The

largest creditor was the Royal Bank; the second largest was Confederation Life (Globe & Mail, March

31, 1992). Although Inducon's financial sources invohred the largest financial institutions, the scale of

its debt is quite different frorn that of the large developers. While Cadillac Fairview's total debt was $7.5

billion and Bramalea's debt was $4.9 billion, Inducon's debt was 'only' $175 million (Globe 8 Mail,

March 31,1992; Decernber 23,1992; December 31, 1994).

Real estate devekpen of different sizes tend b use different financing modes. In the eady

stages of a developer's life cycle entrepreneuriafdevelopers are short of capital; they do not have

substantial retained eamings from previous developments, and hence they engage in the build-and-seIl

practice. According to this practice, the developer builds a building for an investor or the user of the

office building for a fee. In this case the development is done on a ground lease held by the owner or

the investor, and hence it does not require significant capital outlay by the developer. The Oxford

Development Group in its eady stages provides an excellent example. The founder of Oxford. Donald

Love, had conducted business with the local manager at the Royal Bank in Edmonton. The bank

manager inforrned Love that the bank was looking for new premises in Edmonton. Love went to see the

bank executive in charge of premises, and as a result Oxford developed a series of Royal Bank

buildings across Canada. During the mid-to-late 1960s, Oxford also developed office buildings for the

Bank of Montreal and the Canadian Imperia1 Bank of Commerce (Goldenberg, 1981; an interview with

the founder of Oxford). The pattern was vety simple; Oxford would lease the land from the bank, build

the building and lease the prernises back to the bank. Oxford also ananged financing for these

projects, but it was quite simple, since the bank could guarantee the debt.

For a developer that is an a m of a major corporation and is seeking 10 retain the property,

financing is possible through the parent company or through a joint venture partner. Because of the

financial strength of the parent company, Cemp (a vehicle to manage the fortune of the Bronfman

family gained through whiskey distilling), Fairview was able to arrange short-term bank financing for the

development stage of its office buildings. In a later stage, Fairview sold its mortgage bonds, which were

based on the value of the tenants' leases (Building Management, February 1966). The joint venture

between Fairview and the Toronto-Dominion Bank in the Toronto-Dominion Centre was facilitated

through a public offering of long-terni notes guaranteed by the Toronto-Dominion Bank and Fairview. A

major advantage of a bank being involved in office development was that the bank would guarantee the

long-terni debt or provide the deficiency agreement on the debt. When a bank puts a guarantee on

debt, it ranks equally with deposits, which means that the company does not have to file a prospectus,

which takes a long time (intenriew with a former president of Cadillac Fairview).

Large companies also use a variety of sources (see the case of Olympia & York). Court

documents from 1994, when Cadillac Faitview was seeking court protection, revealed that the largest

Canadian life insurance cornpanies were Cadillac Fairview's major mortgage pmviders, these included

Sun Life, Manulife. Canada Lie, Great-West Life, Mutual Lie, and the US.-based Prudential lnsurance

Company (Globe 8 Mail, December 31, 1994). It is of interest here that fiie of the life insurance

companies providing mortgages to Cadillac Fairview were Canadian companies, and it is also

important to mention that only foreign Company included, Prudential Insurance, had a substantial

underwriting business when the mortgages were provided.

The high degree of concentration within the Canadian financial system, in which f i e banks and

about a dozen large life insurance companies control short and long-term financing, and the limited

number of large developen results in close-knit netwoiks between financial institutions and developen.

This notion was suggested in the case of Toronto's Financial District. A report prepared by the New

York-based financial services firm Salomon Brothers in 1989, asserted that %uildings in the financial

core are owned for the most part by a closeiy knit group of well capitalized developen and banks"

(Kostin et al., 1989, p. 16). As indicated in this section and as will be argued in later sections, banks

and developers and 1;fe insurance companies and developen, have established and maintained long-

term relations and partnerships.

With regards to the spatial practices of office development financing, the absence of data on

this theme limits the abiltty to provide conclusive arguments. However, preliminary findings suggest that

the financial sources for office development in Canada are mainiy domestic. In the case of debt

financing, the requirement set by the financial institution to match assets and liabilities by spatial units

(in Canada, by provinces or regions) limits flows between regions and certainly between countries. The

share of direct real estate investrnent in total assets of financial institutions is quite small; consequently,

the need of the financial institutions to import capital from outside a distinct political jurisdiction that

regulates its financial institutions is limited. In addition, currency risks (lending in US. dollars and

receiving cash flow in Canadian dollars), and taxes imposed on capital movements limit the extent of

the free flow of capital across international boundaries (see section 4.5).

4.3 Financial Institutions as lnvestors in Office Buildings and as

Developers Office buildings have been one of the preferred properties for investment and development by financial

institutions. Financial institutions have three major incentives to engage in office development. From

the point of view of being office space users, these institutions are large employers. Thus, acting as

developers of their own premises makes sense from an econornic perspective. Second, since financiaI

institutions occupy a variable share of their head-office and regional office complexes, development

might generate additional revenues through leasing space to tenants. Other authors have put more

ernphasis on the symbolism of large office buildings. Owneahip of their prestigious office buildings

seived also as an image promoter for financial institutions (Domosh, 1988, 1992, 1996).

Financial institutions have historicaliy been developen andlor ownen of office buildings. Banks

and life insurance companies in Canada were invohred as either ownen or to lesser extent as

developen of their head and regional offices. These financial institutions occupied only a portion of the

total office floor-space, and rented out space to tenants (Gad and Holdsworth. 1987b). During the post-

WWll era offices grew tremendously in sire, and financial institutions realized that office development

could be profitable. As a result, starting in the 1960s and culminating in the 1 WOs, financial institutions

became strongly invohred in office development.

By erecting a building that was identified with the corporation, a material embodiment was

created; this physical monument acted as a symbol of corporate presence in a specific location (Relph,

1987; Feagin, 1988; Zukin, 1991). This function was especially irnpoitant for financial institutions which

attempted to paint themsehres as sound and safe corporations. Dornosh (1988, 1992) suggests that

one of the reasons for the construction of skyscrapers in Manhattan in the late nineteenth and eady

twentieth centuries was symbolism. This was especially the case with life insurance companies. These

companies needed to justify their excess proffis and lack of any apparent material product. By

constructing impressive office buildings, they were able to present to the public a civic-minded

corporate identity, and their buildings were the material manifestation of that identtty.

Beyond the symbolic significance of buildings, there is a functional purpose. In Canada, a

country with an integrated financial system, the scope of major banks and life insurance companies is

national; therefore, there is also the need for regional offices in major metropolitan areas. Regional

offices in a oumber of cities require physical presence. and this in tum results in demand for office

buildings.

The involvement of financial institutions in office development included three major ways. The

first method was hiring a real estate company with an expertise to deal with large-scale office

development. In this case the financial institution kept the full ownenhip in the project. The definition of

'developer' in this case is broad. Most financial institutions lacked the expertise needed for the

development process, expertise which has been acquired by developers (such as dealing with land

assembly and planning regulations), hence they preferred to hire experienced developers to act on

their behalf as project managers. However, in this case the institution might be considered the

developer in the sense that it decided on the type of development, the location, and it retained the full

ownership of the project; the professional developer was merely a hired expert with no stake in the

development.

The second method was partnering with a real estate company for development. In this case,

the real estate company developed the project and assumed partial ownenhip. Especially in the 1970s

and 1980s. financial institutions often fonned joint ventures with establkhed real estate developen; if

successful, these partnenhips might have lasted for a long period of tirne. In the case of joint ventures,

developers and institutions shared the ownership of the pmjects developed. The combination of access

to capital via the financial institution and the expertise of an established developer enabled the

development of large-scale projects.

Finally, the financial institution can became a semi-integrated real estate Company. Financial

institutions could act as a semi-integrated real estate developen by having a real estate development

department; these institutions tended to outsource certain professional functions to hired experts

(engineers, architects, planners and leasing broken). This was the exceptional case for financial

institutions participation in the real estate sector. On the participation spectnim in the real estate

development industty, the 'developer' position indicates the highest degree of invohrernent and risk

(see section 3.6). Generally, financial institutions which are more consewative organizations than real

estate cornpanies, abstain from this direct form of invohrement. Real estate development requires

knowledge and expertise that is not central to the business of these institutions.

There are two sections in the discussion on financial institutions, one deals with banks and the

other examines Me insurance companies.

4.3.1 Banks and office development

Historically, banks have been large usen of office space. especially of large-sca!e downtown buildings.

Partly as a resul? of their need for space and partly because the inclination to generate additional profits

(and to guarantee space for future expansion), banks engaged in the development of large buildings,

using a variable portion of the total office space they developed.

Between the 1960s and the 1980s, al1 the big-fie Canadian banks were invohred either as sole

developers, joint venture partnen, or as partial ownen in the construction of their head office

complexes in Toronto (a similar pattern was evident in their regional offices in Canada, see section

4.4.1). The cases of the Royal Bank (sole owner employing developer for fee) and the Toronto-

Dominion Bank (joint venture, partial ownenhip) were illustrated earlier. In addition, the Canadian

Imperia1 Bank of Commerce was the sole developer and owner of its head office cornplex, the Bank of

Nova Scotia used a developer as joint venture partner and retained partial ownenhip, and the Bank of

Montreal had 25 percent eguity in the ownership of its head office (Table 4.2).

Table 4.2 Banks involvement in the development and ownership of their head offices in Toronto

Bank Role in development Owmship at the time of

development

Toronto-Dominion Partnenhip with Cadillac Fairview Paitnership 50150

Cl BC Developer Owns 1 M) percent

Bank of Montreal lnvestor Minority interest (25 percent)

Royal Bank Hired a developer Owns 100 percent

Bank of Nova Scotia Partnership with Campeau Minonty interest - .

Source: Various sources.

The development of the Royal Bank Plaza in Toronto, the de facto head office of the Royal Bank (de

jure, the head office is in Montreal), illustrates the nature of relationship between a bank and a hired

developer. In 1972, afîer meeting with a number of major developers, the bank appointed the Toronto-

based Y&R Propeities (one of the well-established office developen in Toronto) to act as its agent and

developrnent manager for the construction of the Royal Bank Plaza in Toronto's Financial District. The

cornplexity of development prompted the bank to assemble a project team, in which Y&R had a pivotal

role. In this case, as pointed out by one of the bank's officiais, the distinction between the developer

and the owner was made: '...the developer would lend his expertise to a prospective owner for a fee.

Up to this time, the developer usually held direct interest in the project and developed it on this basisn

(Canadian Building, September 1975). For the purpose of rnanaging the Royal Bank Plaza, the Bank

formed its wholly-owned subsidiary, Globe Realty Management in 1974. The role of Y&R was

especially important as the mediator and the negotiator with Toronto City Hall. The Royal Bank with its

head office in Montreal at the time was a newcorner in Toronto's Financial District (Although the bank

had office buildings in the area before, they were not at the size of a large-scale project). The bank

used the expertise of a real estate brokerage fim to assemble the land, and being inexperienced in

handling development; the bank needed an expert that was able to deal with this large-sale project. In

this way, the bank rnaximized the potential benefis gained through knowing the 'niles of the gamet.

An exarnple for another type of relationship is the long-terni connection between the Toronto-

Dominion Bank (TD) and Fairview (later Cadillac Fairview). In the early 1960s after the merger of the

Dominion Bank and the Bank of Toronto, the TD contemplated the idea of developing a new head

office building in Toronto. The City of Toronto urged the bank to consider a development of a whole

downtown complex instead of only a head o f f i building (Collier, 1974). As a result, Me bank teamed

up with Fairview to develop the largest office complex in Canada, the Toronto-Dominion Centre ( f i e

buildings and over 4 million square feet of office space). In this case an equal partnenhip was fomed,

where the bank owned 50 percent of the project and the developer owned the other half. The initial

connection between the TD bank and Fairview was faciiitated through the mediation of a prominent

Toronto investment dealer. The bank executives were impressed with the quality of development

demonstrated by the development company as well as the company's expertise; moreover, the

financial credentials of the developen (their association with the Bronfman family) helped to forge this

partnenhip (intewiew with a former president of Cadillac Fairview). In this case it is clear that the bank

wanted to build a large project that would be an income producing property because only a small

portion of the Toronto-Dominion Centre senres as the bank's head office, h i l e the vast majonty of

office space was rented to various tenants.

The only Canadian bank that had aspirations to become an integrated real estate developer

was the Canadian lmperial Bank of Commerce (CIBC). In the late 1980s, the Bank attempted to cash

in on the real estate upswing by establishing a real estate subsidiary, ClBC Development Corporation.

The creation of a real estate a m was an attempt to change its traditional rote in real estate from a

lender to a major owner and potentially a developer. The Bank announced the formation of its real

estate subsidiary at the peak of the real estate cycle in 1989 (Toronto Star, January 11, 1989). The

original purpose of the subsidiaiy was to manage the Bank's existing real estate podfolio and

eventually expand into real estate development. According to a ClBC executive, the Bank's properties

contributed an insignificant share to its profils; by establishing the subsidiary, the Bank aimed to

rationalize its assets and generate more profits from its real estate portfolio (Globe & Mail, January 11,

1989). The mandate of ClBC Development Corporation was threefold (CIBC Development Corporation,

intemal documents):

o Maximize the value of selected bank properties by creative redevelopment and on-going

management;

o Build a portfolio of prime office and mixed-use income properties through acquisition, development

and joint ventures; and

o Capitalire on synergies between the corporation's expertise and the comprehensive activities of

the bank for long-terni returns.

By the late 1 990s, ClBC Development Corporation was a full secvice real estate company employing

more than 400 people and performing the major functions of a real estate development Company:

leasing, investrnent and development, property management, and corporate real estate (CIBC

Development Corporation, intemal documents). In 1990, a year after the subsidiary was fonned, it

outbid the two largest real estate companies in Canada, Olympia 8 York and Cadillac FaiMew, to build

a proposed Ontario Hydro headquarters complex in Oowntown North York. CIBC Development

Corporation planned to finance, develop, own and manage the 24million square feet, three-tower

office complex (Toronto Star, March 10, 1990; Globe 6 Mail, August 26, 1991); however, the real

estate meltdown in the early 1990s caused the project to be mothballed and eventually abandoned. In

the late 1990s, the ClBC Devekpment Corporation developed a few small office and industrial

buildings in Mississauga and Brampton. The company's main business was real estate leasing,

property management, and acquisitions of real estate assets. Development never took off as planned.

The latest phase regarding the role of banks in both office development and ownenhip signak

a dramatic tumaround is visible in the 1990s. The banks dissociated themseives from the ownership of

big office buildings, and they definitely, at least in the foreseeabk future, abandoned the development

business. In the late 1990s, three major Canadian banks disposed of most of their real estate assets as

part of their strategy to re-deploy assets in the banks' core businesses. The banks considered real

estate as a non-core business in an era of growing competition and specialization. It was suggested

that electronic banking is replacing buildings and real estate investment. A vice-president of the Royal

Bank admitted, 'Ecommerce will be one of the uses of money we make from a [real estate] sale"

(National Post, July 31, 1999). In September 1999, the Royal Bank sold its entire office portfoiio to a

consortium of Oxford Properties Group, OMERS and GE Capital (Toronto Star, September 23, 1999).

The Bank of Nova Scotia sold properties that were not used by the bank. The bank's senior vice-

president of real estate indicated that *we [the bank] do not belong in the real estate business per se.

We are not developen. What we are is an institution that uses real estaten (Globe & Mail, June 17,

1999). The most recent move was by CIBC. In August 1999, ClBC put its real estate division on sale;

by December of 1999, seven premier office complexes were sold to a British Columbia pension fund

(Globe & Mail, August 13, 1999, December 1 1, 1999). When a bank needs a new facility (office or

office-like building), it prefers to have a design-built building for a long lease period put up and owned

by a real estate Company. The new Royal Bank office complex (800,000 square feet) in Mississauga

illustrates this point. The Bank used a developer, Penreal Capital Management (a manager of pension

fund real estate assets), to develop its new two-tower office project The bank leases the building,

which is owned by pension funds.

4.3.2 Life insurance companies and office development

The life and trust companies and pension funds will control the development industry in the

next decaden (Senior Vice-President. Reaity Advisory Group. Toronto-Dominion Bank, Globe &

Mail, September 21,1982).

The changing role of IL insurance companies in the real estate sector matches the position and the

character of development cycles. Barras (1979b) suggested that successive development cycles in

London since the early 1950s modified the structure of the real estate sector and the nature of the

relationship between developers and financial institutions. In the late 1950s and early 1960s, bridge

financing from banks was in short supply and real estate companies were forced to tum to life

insurance companies. These institutions began to appreciate the retums from properiy ownership

during the 1960s. and by the 1970s, life insurance companies were in a commanding position with

regard to nearly al1 aspects of real estate investment and development. Financial institutions engaged

in active development as joint schemes became a common funding arrangement; as a result,

development profit and rental income were shared between the developer and the funding institution

(Barras, 1979b). In Ireland, 'institutional' investon (life nisurance companies and pension funds) also

becarne involved in the process of development, in some cases using developers but reducing the

developer's role to the status of a project manager working for a fee. or by establishing their own

development departments (MacLaran, 1986).

In Canada, the involvement of life insurance companies in real estate ownership and mortgage

provision increased markedly between 1950 and 1980: from approximately 20 to more than 40 percent

of invested assets (Table 4.3). In the 1950s. most life insurance companies had either no real estate at

al1 or had no more than one percent of their total assets in property. which was probably their head

office building and some regional office buildings. By 1960, the situation had already evolved toward

greater involvement of larger life insurance companies in property investment, although the process

was still in its eaily stage. It gathered Pace during the 1960s and the 1970s (Des Rosiers, 1984). In

1980, several large companies had invested significant amounts of capital in real estate. Two of the

larges? companies, Manufacturen Life and Sun Life, had more than eight percent of their funds in real

estate assets (excluding mortgages). When real estate development was growing at a rapid pace, the

average share of real estate in the assets of life insurance companies increased from four percent in

1980 to 5.1 percent in 1990 (Canadian Life and Health lnsurance Association, 1998). However,

paradoxically, the peak (6.3 percent) of the share of real estate investments of assets of Me insurance

companies was in 1992, when the recession was well underway. This was mainly a resutt of life

insurance companies foreclosing assets after their ownen defaulted on their mortgages.

Table 4.3 lnvestrnent of Canadian life insurance companies in real estate and mortgages, setected yean, 1950-98 (percentage of total invested assets)

Year Real estate Mortgages Total

1998 3.3 19.2 22.5

Source: Canadian Life and Health Insurance Association, 1 998.

During the late 1960s and eariy 1970s. the growing sire of development schemes compelled Canadian

real estate companies to increase their reliance on extemal funds from life insurance companies and

pension funds, especially since long-terni financing through these institutions was abundant and

relatively cheap. However, these institutional investors shifted away from straightforward mortgage

lending to funding based on participation patterns as inflation was nsing and real estate investment was

recognized as an efficient hedge against inflation. As life insurance companies discovered that real

estate development was a profitable business, which suited their long-term objectives, they began to

actively seek development opportunities. Life insurance companies approached this arena by first

converting conventional mortgages into 'participation' and 'convertible' mortgages. A participation

rnortgage can mean participation in cash flow or in the project's ownership as well as cash flow. In

convertible mortgages interest payments are made to the institution during the building's early yean,

then the ternis are switched to give the lender an equity positicn, or even an option to buy out the

developer (Financial Post, October 24, 1981). The role of life insurance companies in real estate

operations increased steadily as îhese companies moved from indirect and passive to increasingly

direct and active involvement. This transition led Goldenberg (1981) and Des Rosiers (1987) to

conclude that the control of the real estate sector was shifting away from entrepreneurial capital (real

estate companies) to agents of finance capital (Me insurance companies and pension funds).

Until the early 1980s, the steadily increasing involvement of life insurance companies in real

estate investments was largely through the acquisition of existing properties, but during the 1980s. life

insurance companies began to play an active role in development. The growing attraction of office

development, especially the promise of development gain retained from the development of new

properties, prompted a growing competition between real estate developen and financial institutions.

Life insurance companies either initiated developments, made developers joint venture partners, or

conditioned funding by obtaining a partial ownership in a project. The clearcut distinctions between

developers (real estate companies) and financiers (life insurance companies) began to blur as life

insurance companies expanded their real estate operations (Des Rosiers, 1987).

The move of life insurance companies from debt financing towards direct investrnent (most

pronounced in the 1970s and 1980s) signaled the relative lessening of their role as financial

intennediary and their increased role as active investors. Empirical evidence covering a thirty-year

period (1950-1980) provided by Des Rosiers (1984) support the argument that the involvement of life

insurance companies in direct real estate investment (either through property ownership or

developrnent) had increased dunng this period. In the postwar era, these companies shifted a larger

portion of their investments into real estate and decreased their share of mortgage lending (Des

Rosiers, 1 984).

Most of the largest Me insurance companies in Canada became involved in commercial

development, particularly in office development during the 1980s. Life insurance companies entered

into the arena of developrnent as a result of the continuous expansion of the real estate market, and

their eagemess to exploit opportunities; in addition, the scarcity of propeities for sale also prompted

their involvernent in development. The upswing in the real estate cycle in the earîy-to-late 1980s

enhanced the attraction of real estate investment for life insurance companies. Companies with no

previous experience in real estate development began to initiate developments. For example, North

Arnencan Life initiated a large office development in North York in partnership with Xerox, and Canada

Life teamed up with ClBC in a joint venture to develop an office building in Hamilton (North Arnerican

Life and Canada Life, Annual Reports).

When life insurance companies engage in office development, they usually do it jointly with

real estate developen. These relations are further cemented into long-terni financial partnerçhips

between real estate companies and life insurance companies. In these cases, life insurance companies

provide the developers with either debt or equity financing, or both. Great-West Lie Assurance

Company had a long-term relationship with the Oxford Development Group. Between 1963 and 1979,

Great-West was a majcr equity and debt provider for Oxford's real estate projects along with

Confederation Life and Canada Trust (Goldenberg, 1981). Great-West provided part of the financing for

development of new office buildings as well as acquisition of individual properties, real estate portfolios,

and real estate companies. Another long-terni relationship was cemented between Mutual Life of

Canada and the Shipp Corporation. These two cornpanies have been partnen since the mid-1960s in

residential and commercial real estate development at the western edge of the Toronto rnetropolitan

area (mainly in Etobicoke and Mississauga).

The life insurance company that has been highly exposed to real estate investment is Manulife

Financial (previously Manufacturers Life). Its share of invested assets in real estate had grown from 4-5

percent in the mid-1960s to almost 15 percent (then, the maximum allowed by law) in 1974. In the late

1980s and eady 1990s its share was at 9-10 percent and dropped to 6 percent in the aftenath of the

real estate recesçion in the mid-to-late 1990s as the Company decided to reduce its real estate

exposure (Manulife Financial, Annual Reports). Up to the mid-1950s Manulife's participation in real

estate was primarily through debt financing (mortgages). Beginning in the mid-1950s. the company had

increased its involvement in equity investment. In the mid-1960s the wmpany decided to invest in real

estate through direct development, making it a unique enterprise among life lnsurance companies in

North Arnerica. It became active in office development as an integrated developer without adopting

specialized developers as partners (Manulife Financial, intemal documents).

The activities of life insurance companies have been highly regulated by rules of the

Governrnent of Canada. These rules outline the type and proportion of investments allowed to life

insurance cornpanies. In the 1970s. the limit on life insurance companies' investment in real estate was

15 percent of a company's total assets. During the 1980s boom, life insurance companies lobbied the

federal govemment to permit them to devote up ta 25 percent of their assets to real estate, and the

industry's association, the Canadian Life and Health Insurmce Association, suggested that the 15

percent limit %il! prove confining to some companies in a vey few yearsn (financial Times, October

31, 1983). In the most recent round of govemment regulation, which came into effect in 1992, no fixed

limits on real estate investment were imposed but rather a 'prudent' approach was suggested for

adoption by the life insurance companies. Under this revised legislation the board of directors of each

life insu rance company is responsible for 'prudent' investrnent decisions. This revision came Mer

insurance companies experienced the high-risk aspects of real estate investrnent and development; as

a result, the share of their real estate declined from 6.3 percent to 3.3 percent of their assets rather

than rising to above 15 percent (Canadian Life and Health Insurance Association. 1998).

During real estate slumps, life insurance companies have been parlaying their real estate

expertise into investor advisory services. Sun Lie and Great-West Lie are two examples of companies

who shifted their focus from purchasing properties for their own account to providing services, such as

real estate management, to outside investon (Financial Post, June 29. 1992). When there are signs of

recovery, some venture into development Although GWL Realty Advison, the wholly-owned real

estate a m of Great West Cie, had no prior experience in development, the company commenced its

first office project in 1998 (Finsncial Post, January 29, 1998). Favourable conditions in suburban office

markets with low vacancy rates provided the platforrn for suburban office development in Toronto,

Calgary and Edmonton. The company's ability to act as a developer is further enhanced by the fact that

a number of its key executives have experience in real estate development. For exarnple, both the

company's president and its senior vicegresident were with Trizec Corporation, one vice president was

with Cadillac Fairview, and another vice president was with a commercial real estate brokerage firm

(GWL Realty Advisors, 1997 Pomolio Review).

4.4 The Spatial Practices ot Office Development and Ownership by

Financial Institutions Real estate investments of financiai institutions have distinct spatial patterns. These patterns are based

on the fact that these institutions are major users of office space and capitalize on real estate being an

income-producing asset. Barras (1979a) in a study of office development in the United Kingdom,

suggested that large and medium-sized life insurance companies and pension funds had a clear

preference for London and the South-East markets. This spatial pattern was grounded in the strategy

and the time horizon adopted by these investors. Martin and Minns (1995) suggest in relation to

pension funds that the concentration of economic power in and around London transfers wealth

disproportionately to the South East of England. They attributs this core-periphery tendency to

institutional requirements for Iiquidity that discourages long-term investrnent in regions outside the

South-East. Henneberry (1999) attributes the sequential pattems in the 1980s office boom, with

London leading the boom and other regions peaking later, to the preferences and decisions of major

institutional investors.

Liie insurance companies and pension funds are considered as consenrative institutions.

interested in long-ten income growth, whereas banks are short-terni investors which require higher

retum on investment, and are, therefore, willing to take greater risk in real estate investment (Banas,

1979a; Des Rosiers, 1984; Pryke, 1994a. 1994b). In the case of the City of London, the financial core,

the 'Square Mile', was considered as the familiar and safe environment that life insurance companies

and pension funds were operating in; therefore, their functionai needs have reinforced investrnent

requirements from real estate companies developing new office space. Banks, on the other hand. hold

essentially short-terni commitments (assets and liabilities). thus they did not tie real estate investment

to particular spaces, allowing real estate developers greater spatial flexibility (Pryke. 1994a).

Financial institutions have preferred to invest in large propetties in a few locations, generaily

large cities, since monitoring of these properties is less complicated than of properties in smaller

centres. Therefore, medium and smaller urban areas cannot support this scale of development, and

are largely ignored by financial institutions. This point highlights the conflict between concentration and

diversification strategies. Diversification. investment in different places and products at the same time.

is perceived as a measure to minimize risk, hence geographical and product diversification is

considered positive. However, in the Canadian context, only several large urban areas are able to

sustain larger projects providing good retums per square foot (economies of scale). In addition, smaller

cities create smaller real estate markets; these are more volatile and shallow markets, and are slow to

recover, whereas the bigger the market the less risk involved in investrnent. The likely outcome will be

diversification within the limited frarnework of the larger urban areas (interview with a general manager

of real estate in a life insurance company).

4.4.1 Banks

Beginning in the 1960s. banks deviated from their traditional role as providers of short-term financing

and became equity investors in joint ventures with real estate developers and other investors. Seeking

office development was 'justified', because the banks needed networks of regional offices and office

space to accommodate their main branches. However, in most of the office developments that the

banks were involved in, the actual space occupied by the banks' offices was marginal. Most of the big

five Canadian banks participated as equq investon in the development of office buildings for both their

own use and for income producing purposes. For instance, the Bank of Montreal developed an office

building in Winnipeg in the early 1980s to house its Manitoba-Saskatchewan Division. However, the

regional office occupied only one-third of the available office space with the remainder leased to

tenants (Canadian Building, September 1981).

One of the most active Canadian banks in office development was the Bank of Nova Scotia. In

the 1970s and 1980s, the bank sought joint ventures in office development projects for the purpose of

income-producing propeities. The bank was active in almost al1 of the hrgest cities across Canada

(Table 4.4).

Table 4.4 Bank of Nova Scotia and office development joint ventures

City Period Project Size Partner (square feet)

Vancouver Eariy-to-mid 1970s Vancouver Centre 400,000 Fmous Players, Birks

Calgary Mid-1 970s Scotia Centre 600,000 Trüec

Edmonton Eariy-to-mid 1 980s Scotia Place 550,000 National Trust, pension funds

Winnipeg Late 1970s-early 1980s Winnipeg Square 600,OoO TNec

Toronto Mid-to-late 1980s Scotia Plaza 1,500,000 Campeau

Montreal Late 1 980s-early 1990s Tour BNE 300,OOO Monit ( h l developer)

St. John Mid-1 970s-late-1 970s Brunswick Centre ~,~ Trizec and other partners

Sources: Scotiabanker (Bank of Nova Scotia Staff Magazine); Tritec Corporation, Annual Reports.

In al1 the office buildings in which the bank was a joint venture partner, it occupied the lesser part of the

available office space. The reason for these joint-venture developments was to acquire equrty interest

and to take advantage of the benefis embodied in real estate assets. Table 4.4 also shows the long-

terni relationship between the bank and Trizec (three buildings were built as joint ventures). In addition,

the Bank of Nova Scotia was a minonty holder of the Canadian Company (Carena Properties) that

purchased Trizec Corporation (the Trizec case is discussed in section 5.4.1) from its British owners in

1976 (Goldenberg, 1981).

The portfolio of ClBC Development Corporation, the real estate subsidiary CIBC, illustrates

similar type of practices as the Company was geared toward investment in real estate for income-

producing purposes. The spatial practices presented by CIBC Development Corporation reflect a

preference to Canada's f i e largest rnetropolitan areas. These areas accounted for more than 97

percent of the company's office portfolio; in particular, this portfolio is favourably disposed towards the

Toronto area: over 54 percent of the total portfolio was concentrated in this metropolitan area (Table

4.5).

Table 4.5 ClBC Development Corporation and Royal Bank's owned office portfolio, l998,l999

Metropolitan area

--

Toronto

Calgary

Edmonton

Montreal

Vancouver

Hamilton

Ottawa

Winnipeg

London

Halifax

Regina

Other

Total

ClBC ûevelopment Corporation (1)

Office space % of total portfolio (WC square feet)

3,729 54.5

1,124 16.4

750 11.0

71 6 10.5

341 5.0

180 2.6

O O

O O

O O

O O

O O

O O

6,8«) 100.0

Royal Bank

M c e sprte % of total portfolio (üûû square feet)

2,721 55.9

47 1 .O

1 44 2.9

1 46 3.0

1 98 4.1

O O

401 8.2

21 7 4.4

180 3.7

1 74 3.6

112 2.3

531 (3) 10.9

4,871 100.0

Notes: (1 ) 1998 figures. (2) 1999 figures. (3) These includes cities with properties of l e s than 100,000 square feet eah: Thunder Bay, Saint John, Brandon, Moose Jaw, Saskatoon, Lethbridge, Prince George, Kamloops, New Westminster, Victoria, and Guelph. Sources: ClBC Development Corporation, Property Portfolio; Oxford Properties Group, written communication.

The office portfolio of the Royal Bank presents a different spatial pattern with a wider dispersion across

Canadian cities (Table 4.5). Except for a similar large portion of the Royal Bank's portfolio in Toronto

(almost 56 percent of the bank's total portfolio), the spatial patterns of the Royal Bank are different from

those of the Bank of Nova Scotia and CIBC. The high-profile of Toronto in the portfolios of al1 three

banks is a result of the banks having their head office complexes in Toronto. Commerce Court (2

million square feet), Royal Bank Plaza (1.5 million square feet) and Scotia Plaza (1.5 million square

feet) are located in Toronto's Financial District. Apart from that, each bank has different spatial

practices. ClBC Development Corporation is a specialized real estate f im that owns major bank

premises, and rnulti-tenant office buildings that are owned for revenue purposes and are leased to

various tenants. In 1997 the company acquired four office buildings in the Mississauga City Centre

(800,000 square feet). ClBC was not a major tenant in any of these buildings (interestingly, the Royal

Bank is one of the major tenants in two of the four buildings). In Calgary, the company co-owned one of

Calgary's largest office buildings, Gulf Canada Square (1.1 million square feet); in this building ClBC

was not a major tenant (CIBC Development Corporation, 1999). The Bank of Nova Scotia, although not

as aggressive as ClBC in punuing o f f a development, was invoived as a parbier in office

development, primady in major Canadian cities (Table 4.4).

The Royal Bank portfolio, on the other hand, consists mainly of office buildings in which the

bank is a major tenant. The portfolio consists of a large number of small buildings; out of the bank's 33

buildings, 21 are less than 100,000 square feet (in comparison, the ClBC portfolio includes only four

small buildings out of a portfolio of 18 buildings). The Royal Bank portfolio is much more dispened than

the ClBC or the Bank of Nova Scotia office podfolio. Approximately two-thirds of the Royal Bank

portfolio is in f i e of aie largest metropolitan areas (Toronto, Montreal, Vancouver, Calgary and

Edmonton), whereas a majonty of the Bank of Nova Scotia portfolio is these metropolitan areas, and in

virtually al1 of ClBC Development Corporation portfolio is in these metropolitan areas.

The reason for the 'discrepancy' beîween these office portfolios is a result of the different

approaches toward real estate adopted by the banks. ClBC decided, in the late 1980s, to become an

active player in the real estate sector, mainly through management of the bank's premises, and

ownership of real estate assets for income-generating purposes. Real estate was perceived as an

under-perfoning asset and the bank aimed to maximire the value of its properties. Thus, the

company's focus was on prime properties that generate high rents and high retums. These are large

properties located in the largest Canadian metropolitan areas. The Bank of Nova Scotia punued office

development in the 1970s and 1980s when office development was in high demand. The bank

attempted to take advantage of these favourable conditions and becorne a partner in real estate

projects. The Royal Bank acted mainly as a user of office space, owning properties that are needed for

the bank's functions. Hence, the bank had a large number of srnall-size buildings in a variety of cities

across Canada. The bank's portfolio consisted of buildings in small cities such as Thunder Bay,

Brandon, Moose Jaw, and Kamloops; in al1 of these cities, the bank owned small buildings, each less

than 50,000 square feet in size. This represents a spatial pattern of ownership of office buildings that

matches the bank's spatial functional configuration. Although having similar functional needs, Cl0C and

Royal Bank considered real estate in different ways; while Cl0C attempted to become active in real

estate development, the Royal Bank regarded its office buildings mainly for use purposes.

4.4.2 Life insurance companies

The financial strategy of life insurance companies is to match assets and liabilities; in this process they

also attempt to match their assets and liabilities spatially. In cases where the Company does not have

much business in a specific province, it prefen to have a minimal level of real estate investment in that

province. L ie insurance companies, as a result of being national in scope, need regional offices, and in

the past wanted to be visible in the places they operated in. Consequently, buildings were often built to

provide the company with 'presence' (an interview with a vicegresident in the real estate division of a

life insurance company). However, more recentiy this matching process has been accompanied by the

intemal logic of real estate investment, which prefen investment in centres which are large and have

potential growth. Currently, at the metropolitan level, the largest urban areas with considerable growth

rates, such as Toronto, Vancouver, Calgaiy and Edmonton, are considered attractive for investment.

These areas reach a certain size threshold. This results in market depth, which allows life insurance

cornpanies to invest in large projects (large projects are missing from smaller scale cities). In addition,

some large metropolitan areas, such as Montreal, are considered less attractive because their growth

prospects and stabildy are not considered satisfactory (interview with a general manager of the real

estate division of a Iife insurance company).

Until the 1980s, the majonty of life insurance companies were primarily either debt providers or

CO-owners of office buildings; only one life insurance company, Manulife Financial, developed office

space for income-producing purposes. In the 1980s some life insurance companies canied out their

first ventures in the office development arena as sole or joint venture developers; these developments

were usually large-scale projects. Sun Lie developed three major office complexes, one in Toronto's

Financial District (a two-building complex), one in Calgary's downtown (a three-building cornplex), and

another in Edmonton. London Life teamed up with several otber investars ta develop College Park and

33 Yonge Street in downtown Toronto, and with Cadillac FaiMew to develop a three-building complex

in North York. North American Life developed jointly with Xerox a two-tower office complex in North

York (Me insurance companies, Annual Reports).

The spatial patterns of the developments carried out by Iife insurance companies reveal a clear

preference of the largest cities, and specifically the Toronto area. Dunng the 1980s, Toronto was the

focal point of office development in Canada. Although other cities experienced development surges,

Toronto was clearly the chosen location. This tendency was reflected in the primary position of Toronto

on the agenda of life insurance companies (Table 4.6). Large-scale downtown developments were

common features of projects invohring life insurance companies. The need for large pools of capital

secured by the relatively stable downtown environment prompted the involvement of life insurance

cornpanies in downtown projects.

One exarnple is the development of the Bentall Centre in downtown Vancouver. This complex includes

four office buildings with 1.5 million square feet of office space buiit between 1966 and 1981 (in 2000,

the fiih building is under development, the partner is a pension fund, OMERS). Bentall Corporation

teamed up with Great-West Life as an equity paitner to develop the Bentall Centre. In addlon, Great-

West provided the mortgage for the project, and becarne the primaiy tenant in one of the Centre's

buildings. Bentall could not get a mortgage without a prime tenant. The solution was that Great-West

became the prime tenant and provided the mortgage. Great-West also took an equity position; this way

it could enjoy both worids: it would collect interest payrnents as the moitgage provider, and share the

development gain as an equity partner (Gutstein, 1975).

Table 4.6 Major office developmenh by Canada's largest life insurance companies (for income-producing purposes), late 1970s to early f 990s

Company Toronto Montmal Calgary Vancouver Edmonton . .

(head office) Manulife 2550 Victoria Park, Centre BC Gas Building; Manulife Place ( T O ~ O ) North York Manuvie 51 O Bunard

Sun Life Sun Life Centre (Toronto)

Canada Me Canada Life Building, (Toronto) Scarborough

London Life 33 Yonge; (London. On tario) Cdege Park; Yonge

Corporate Centre, North York

Mutual Life Shipp Centre, (Waterioo) Etobico ke;

Mississauga Executive Centre, Mississauga

Crown Life (Toronto)

160 Bloor E.; 175 Bloor E.; Gateway Centre, Markham

North Arnerican Life North Arneiican Life (Toronto) Centre, North York

Confederation Life One Mount Pleasant; (foronto) Airway Centre,

Sun Life Sun Life Plaza Sun Life Place Plaza

Bentall Centre

Mississauga Sources: Lie insurance companies Annuai Reports, newspapers and personal communication.

However, joint ventures between life insurance companies and developen were not limited to

downtown projech. Inducon, a suburbiui Toronto office and industhal developer, formed joint ventures

with life insurance companies at the midst of the office development boom in the 1980s. lnducon

fomed a joint venture with Confederation Life for a development project in Mississauga, and with

Prudential Assurance in Etobicoke and in Mississauga (Globe & Mail, October 11, 1988).

A joint venture between Manulife Financial and Orlando Corporation, one of Toronto's largest

suburban industrial and office developers, was formed to facilitate the development of one of the

largest business paks in Canada, the Heartland Business Park in Mississauga. Manulife acquired the

land, more than 1200 acres, and Oriando acted and still acts as the developer. These observations

indicate that those life insurance companies, like real estate development companies, are highly

opportunistic agents. Although most of their real estate investments are in downtown developments,

they invest in different locations based on available opportunities.

Manulife Financial was the most active of the Me insurance companies in the area of office

development in Canada; it developed more than 4 million square feet of office space (Table 4.7).

Table 4.7 Office buildings developed by Manulife Financial h r income-producing purposes, 1960s to 1980s

City Office space % of total Notes on changes ('000 square feet) portfolio

Toronto (1) 1,100 25.9 3 small buildings (1 50,000 square feet) were sold in 1991 Edmonton 800 18.8

Vancouver 12.9 One building çold in 1995 (350,000 square feet); another building (200,000 square feet) purchased in 1999

Calgary 500 11.8 One building (80,000 square feet) sold

Ottawa 450 10.6

Halifax 250 5.9 Portfolio sold

St. John's 250 5.9 Half of the portfolio sold

Montreal 4.7 Another building (200,000 square feet) was acquired in 1999

Winnipeg 150 3.5 Portfolio sold

Total 4,250 100.0 Note: Excluding Manulife Financial head office complex (1.5 million square feet). Source: Maun l ie Financial 2000, Personal and wntten communication.

The first office building developed by Manulife in 1965 (50,000 square feet) was in Toronto; it was

followed by an office building in Calgary, completed in 1967 (276,000 square feet), and another office

building in Toronto was completed in 1969. In the 1970s, Manulife constructed office buildings in

Toronto, Calgary, Ottawa and Winnipeg. The most prominent development was the Manulife Centre in

Midtown Toronto (Bloor/Bay), a mixed-use complex of residential, office and retail uses. During the

1980s and the eady 1990s. contrary to Me actions of other life insurance companies, Manulife's

developrnent focus shifted fiom Toronto to other cities. Manulife built office buildings in Vancouver,

Calgary, Ottawa, Halifax, Edmonton, Montreal, and St. John's. The development of Manulife Place in

Edmonton was the single largest office building developed by Manulife in Canada.

As in the case of other real estate companies and life insurance companies, this was an

attempt to capitalize on the expanding economy of Alberta in the late 1970s and early 1980s. During

the 1980s. Manulife developed a total of 2 million square feet of office space across Canada. In

addition, the company developed office buildings in the U.S., primarily in Washington DC, Los Angeles,

Chicago, and San Diego and shifted its main focus to the United States (see next section).

Following the severe recession in the early 1 9 9 0 ~ ~ Manulife decided to seIl a significant portion

of its real estate holdings. The risky nature of real estate has prornpted this move as the concentration

in real estate %as higher than we [Manulife] would like compared to the industv (Manulife Financial,

senior vice-president, Globe & Mail, April 3, 1995). The assets that Manulife sold were the smaller

office buildings in the medium-sized and smaller cities (Winnipeg, Halifax and St. John's), and smaller

buildings in the largest 'markets' (Toronto and Calgary).

Wiihin the metropolitan areas, Manulife investments in office buildings are favourably disposed

toward downtown areas. In the 1980s, the oversupply of office space in suburban markets propelled

Manulife to concentrate on 'prime' downtown opporlunities in cities with stable and divenified

economies' (Manulife Financial, 1989 Annual Report). Statistics on the value of the company's office

buildings indicate that in the 1990s (1992-99), downtown office buildings constituted on average more

than 80 percent of the value of the total office buildings in Canada owned by Manulife (Manulife

Financial, intemal company reports).

4.5 The Spatial Limitations of Real Estate Capital In conformity with the notion that the spatial reach of capital is almost without limits, Olympia 8 York is

often used as the archetypal development company employing global capital (Logan, 1993; Ghosh et

al., 1994). However, even in the case of O&Y, close links were obsenred between the places in which

capital was invested and places where the lenden were kcated. In other words, Canadian lenden

were primarily exposed to Canadian real estate properties; U.S. and Japanese lenders were

collateralized mainly by US. assets; and European banks were mainly exposed to the Canary Wharf

project (Ghosh et al., 1994, p. 11). Moreover, Olympia 8 York is an exceptional case. Most Canadian

developers acquire thek funding from domestic sources. Based on a number of case studies, it is

reasonable to suggest that Canadian banks and Canadian life insurance companies are the major

providers of debt and equity financing for office development in Canada.

Information on foreign investment is partial. However, insights gained through a careful

examination of published material and interviews with industry insiders make it reasonable to suggest

that the role of foreign capital in Canadian office development has been limited. The notion that most of

capital invested in Canadian real estate is domestic was also supported by a senior executive of a life

insurance company:

The major sources of capital are quite provincial, they [financial inçtihitions] want to lend money in the place that

they know. There is not a b t of desire of a U.S. lender to come to Canada and leam the laws of Canada, and

leam about the real estate market. When you do it, you tend to lose money. Capital tends to stick close to home.

In Canada, the role of foreign capital is very marginal. Most of the debt in this market is controlled by life

companies, pension companies and the banks" (an in te~ew wia, a VicePresident of Canadian mortgages at one

of Canada's largest life insurance cornpanies).

Preliminary findings suggest that the provision of foreign capital as debt financing for office

development projects in Canada has been moderate in size. An interview with the executive vice-

president of a major Canadian bank revealed that there are great risks in using foreign capital for real

estate development. The fact that the cash flow of an office building in Canada is in Canadian dollars

makes lending in any foreign cunency susceptible for exchange rate fluctuations. Although information

of debt financing is partial, the absence of information on significant foreign financing may suggest that

it is unusual in the case of office development. Among the largest office buildings developed in Canada

in general and in Toronto in particular, the only reported foreign capital (debt financing) was used in the

case of Place Ville Marie in Montreal, where financing was obtained from Metmpolitan Lie and Eagle

Star, a British insurance company, around 1960 (Zeckendorf, 1970, p. 179).

On the other hand, foreign direct investment for the acquisition of real estate assets and to

lesser extent the development of new structures seems to be more prevalent than foreign debt

financing. The reason for this might be that direct investment is more visible. and therefore easier to

detect than debt financing. In order to develop office buildings, foreign investors prefer joint ventures

with Canadian developers. Prudential lnsurance of America, the co-developer of the Consilium Place in

Scarborough, had a haIf interest in this project; a Toronto-based developer, Equity Development

Group, owned the other haL The Prudential Assurance Company of the United Kingdom was a partner

of lnducon in office development in Etobicoke and Mississauga (Globe & Mail, July 28, 1983; Financial

Post, September 19, f 990).

The extent of foreign participation in office development in Canada has been marginal and was

mainly through the acquisition of office buildings. Edgington (1996a, 1996b) found that among

Japanese investon in Canadian real estate, investment in office buildings between 1985 and 1992 was

scant, and it was through the acquisition of existing office buildings. In total. Japanese investon

acquired six office buildings in Canada (three in Vancouver and three in Toronto), while their main

investment was in hotels and resorts in western Canada (Edgington, 1996b. p. 26). Even when foreign

developers engage in office development in Canada. it does not necessarily mean that they utilize

foreign capital; often they may use Canadian financing.

The mortgage for the York Centre (known later as Aetna Centre) located on King and York

Streets at the heart of Toronto's Financial District (developed by Olympia & York) was provided by the

U.S.-based Prudential Insurance Company of America (Globe & Mail, January 1, 1993). However,

since Prudential lnsurance had large Canadian operations and collected prernium incomes in Canada,

it is quite possible that the mortgage funds acquired by Olympia & York were Canadian funds.

Hammerson Canada, one of the major foreign developers in Canada, used foreign capital as

construction bans (short-term financing), while long-term financing was raised in Canada (interview

witb a former president of Hammerson Canada).

In addition to Canadian real estate companies operating outside Canada. primarily in the U.S.

(see section 3.2), Canadian financial institutions were involved and still are in real estate investment in

the United States. In the boom years of the 1980s, Canadian banks provided financing for selected

office development projects in the U.S., and in the 1990s, several Canadian pension funds purchased

real estate properties in the U.S. However, the rnost active financial institutions in this field have been

life insurance companies.

Canadian life insurance companies do not limit their investments to Canadian assets, and their

real estate investments are not an exception. Des Rosiers study (1984) shows that between 1960 and

1980 the share of real estate investment by Canada's largest life insurance companies in Canadian

real estate decreased from 91 to 68 percent of their real estate investments. Data on the geographic

distribution of real estate investments is scarce for the period between 1980 to the mid-1990s;

however, detailed data on one Company, Manulife Financial, is available (Table 4.8).

Table 4.8 Spatial distribution of Manulife Financial real estate portfolio, selected years, 1960-99 (percentage of book value)

Year Canada United States Other

1999 39.8 60.1 O. 1

Sources: 1960 to 1980: adapted from Des Rosiers (1 987); 1985 to 1999: Manuiife Fuiancial Reports.

Between the 1960 and 1980, the share of investment in Canadian real estate was on a constant

decline from 97 percent of the total portfolio to 56 percent. In the 1980s, the share of Canadian

investment stabilized on 55 to 60 percent of the company's real estate portfolio. However, since the

early 1 990s' the share of the Canadian portfolio was on the decline, and by 1999 it reached 40 percent

of the company's real estate portfolio. In the early 1990s a newly revised Canadian legislation

goveming life insurance companies was introduced. Under the new legislation, instead of fixed limits on

investment (until then a lima of 15 percent was applied to investrnent in real estate assets), the

companies' boards of directors are responsible for ensuring that the company makes sound and

prudent investment decisions. Manulife guideline mix set an upper limit of up to 60 percent of the real

estate investment in Canada and the same limit for investment in the United States. The U.S. office

market seems to have more growth potential. In addition, Manulife owns larger assets in the US.: the

book value of two buildings that the company owns in Washington DC is more than 20 percent of the

company's total real estate portfolio; these assets are considered core assets.

4.6 Financing and Financial Institutions: Concluding Remarks This chapter addressed two major themes: the sources of financing in the office development sector

and the role of financial institutions as facilitators and developers. Real estate cornpanies use a vanety

of financial sources in their office development ventures, but three sources stand out as the most

impodant ones: banks as the providen of short terni financing, life insurance companies, and pension

funds as facilitaton of long term financing. A portion of large real estate companies is able to tap

capital markets. Large cornparies are able to raise capital at magnitudes that enable participation in

large-sire projects and a large number of projects.

The participation of financial institutions in the real estate sector has two principal dimensions.

First, these institutions control large pools of capital collected from various sources, such as deposits

and premiums that are placed in their domains. This empowers them to direct investrnent into and out

of different investment channels, including real estate. The flexibility of their investments depends on

their ability to match assets and liabilities both fiscally and spatially. Institutions that control long-temi

assets tend to be more involved in real estate than institutions with short-terni assets. In the case of

short-term financing, the role of institutions is mainly to mediate the flow of capital between secton,

products and locations, ensuring the smooth flow of capital. Generally, financial institutions prefer to

lend money for office development in areas that they perceive as established office districts. However,

economic conditions and the position of the building cycle have a signifiant impact on lending

practices. In times when the real estate market experiences growth, location is perceived as a less

important issue; in this case capital is looking for opportunities without setting clear-cut spatial

limitations. Development could proceed without tenants that are committed to the project. When the

market is 'soft' financial institutions tend to be more careful, and would finance development in projects

with substantial pre-leasing.

Very little is known about the connection between financial institutions as debt providen and

real estate companies; however, more information is available on their role as equity investon or as

developers on their own account. Over the last few decades, financial institutions became increasingly

involved in real estate investment as stakeholders in real estate assets andor real estate companies.

This direct involvement is beyond their traditional role as financial intemediaries. Ownenhip of

propetties and companies, and investment in the developrnent of real estate assets, is feasible as a

result of the process of profit accumulation. Parts of these profits have been directed to real estate

investment. Owned real estate assets by Iife insurance companies (and pension funds) place them as

prominent investors in commercial real estate assets (see section 3.1.4).

The geography of real estate investment by banks and life insurance companies indicates that

their spatial practices are quite similar to those of the largest real estate companies (see Chapter Five).

In terrns of office development, these institutions focus on the largest urban centres, specifically on the

Toronto region. Recently, office buildings owned by life insurance companies located in the smaller

markets were sold to local investors, whereas life insurance campanies shifted their focus exclusively

to the major metmpolitan areas that have deep (large) markets and have better prospects of growth. At

the rnetropolitan scale, banks and life insurance companies prefer either to acquire or deveiop (with

partnen) large office buildings, typically located downtown. Hidorically, downtown locations have

provided a more secure investment. Financial institutions being risk-averse (contrary to developers who

are more likely to be risk takers) perceived downtown as a less volatile environment and as a long-term

iniestrnent (in addition, they are users of space in these locations). When suburban ventures were

initiated, they were based on opportunlies; since they are smaller in sire and less costly, they are more

tradable, and hence considered as short-tenn investments.

Although suggestions in the literature of the growing invoivement of fonign investors in local

real estate markets, this study has found littk evidence to support this argument. In the Canadian case

in general and more specificaliy in Toronto, the impact of foreign investors and foreign real estate

companies is quite modest. This finding and the strength of the Canadian real estate companies (ses

Chapter Three) support the rationale of focusing on Canadian cornpanies; this issue is addressed in

the next chapter.

CHAPTER FIVE

THE THREE DIMENSIONS OF CAPITAL SWITCHING:

LARGE CANADIAN REAL ESTATE COMPANIES AT

THE NATIONAL SCALE

Three major considerations guide real estate development companies in their search for profits. These

considerations can be summarized as the Yhree dimensions of capital switching' (see section 1.3.2).

Real estate companies switch between different modes of operation, types of property, and locations

(Figure 5.1).

Location

Figure 5.1 : The three dimensions of capital switching in Canada

In this chapter the switching between different modes of operation (developing or trading) and types of

property (commercial or residential) will be briefly documented. The major part of the chapter will focus

on spatial switching within the Canadian urban system. It will be argued that spatial switching at this

scale is strongly related to building cycles. Thus, a major part of this chapter will explore building cycles

in Canada at the national and provincial scales. Toronto and Calgary will be examined in detail,

because they have gradually become the cities prefened by Canada's hrge real estate companies.

Large real estate companies play a major role in switching of investrnent in office buildings beîween

different cities. Also, more data is available on these large companies than on the smaller and the

purely local ones (see section 2.3.2). The practices of the largest Canadian-based real estate

companies are the focus of the following analysis. The largest real estate companies are also the most

powerful ones (Spurr, 1976; Lorimer, 1978; Feagin, 1982; Weiss, 1987; Beauregard, 1989; Feagin and

Parker, 1990). It was argued that the real estate sedor, in general, is becoming more concentrated and

centralized (Knox, 1993; Logan 1993). Evidence of this concentration has been clearly show in the

case of Canada (see section 3.1). Accordingly it is useful to scmtinize the largest real estate

cornpanies. Because of these two reasons, two publbly held companies, Trizec and Cadilhc Fairview,

will be used as case studies in order to explore spatial switching from the perspective of these

important agents.

The description of capital switching at the national or urban systems scale would ideally draw

on extensive or systematic data regarding office development measured in ternis of capital outlays,

building construction, or floor-space completed. This kind of systematic data is barely available (see

section 2.3.1). As a resuit, a combination of sources and substitute indicators are used.

Statistics Canada provides time series (1 961 -1 999) of the dollar value of office building permits

at the national and provincial levels (data at the municipal level is available upon request, although

expensive). The annual crude dollar value was then adjusted to the price index of business investment

in non-residential structures. Building permit data has two major deficiencies: not ail permits result in

immediate construction (Wheaton, 1987; Leitner, 1994), and some buildings do not get put up at ail.

However, the magnitudes of building penits and completions are "very similar, so most penits are in

fact cornpleted" (Wheaton, 1987, p. 284). Moreover, building pemits constitute a sensitive

'seismograph' of changes. Soon after there are signals of a downtum in demand, the value of building

pemits tends to diminish, while completions continue to be high; this is a result of the time iag between

the approval of the building permit to completion of construction (approximately a two-year period, in

sorne cases the time lag is much larger) that typifies office development. Since no official statistics on

building completions exist, permits are the only data source for estimating national and provincial

cycles.

Data on office space completions for specific urban centres is available from real estate

brokers who monitor the office market. The data for this study was obtained from Royal LePage

Commercial Inc. Two metropolitan areas were scnitnized in detail, Toronto and Calgary. Data for the

Toronto Census Metropolitan Area (CMA) and for Calgary from the late 1960s was obtained (1 969-99).

Between 1969 and 1978, Calgary data includes only the new supply for the downtown area, because

until the late 1970s almost al1 office construction in Calgary was there. After 1979, data on new suppfy

of office space is for the Ci of Calgary.

Data on the developen and ownen of office buildings is available primarily for the large real

estate companies (for Toronto, in comparison to Calgary, more information on local developen was

attained in the field research). Although this data is biased toward the large companies, it provides an

indication on the nature of office development since these companies account for a considerable part

of office floor-space in rnost large Canadian cities. Data sources for identifying office developen are

detailed in section 2.3.2 and section 3.4.

5.1 Switching Between Modes of Operation Real estate development companies that are entrepreneurial in their eariy phases tend to depend on

either extemal capital (debt or equity) or proceeds from previous developments (retained eamings) to

finance developments andlor acquisitions. Typically, this group of developers does not have enough

capital to hold these assets for a long period; therefore, these projeds are sold after completion to their

respective tenants or to other investon. If this type of developer is able to accumulate sufficient capital,

helshe is capable of retaining properties for the long term. Each successful development enables the

commencement of successive projects and allows the company to engage in larger projects in multiple

locations. The main goal of this type of real estate company is to build a structure and obtain the

development gain in order to use this capital for new ventures. A different type of a start-up real estate

company is a Company that has the backing of large corporations. This position permits this type of

Company to punue larger scale developments and retain the ownenhip of the properties developed

(see section 3.1.2).

For larger companies, development and the acquisition/disposition of real estate properties are

two çides of the same coin; real estate companies execute both strategies as they restructure their

holdings. In general, during uptums of the building cycle, companies prefer development over

acquisition. For example, in the office market, as demand for space rises, vacancy rates diminish and

rentai rates escalate. At the same time, the rate of transactions in existing office properties is minimal.

Consequently, development is pursued. As the market hits recession, the extent of development is

reduced. During severe recessions development is almost abandoned. Many real estate companies

and owners of properties experience financial difficutties as vacancy rates soar and rental rates plunge.

As a result, these companies are not able to sewice their debt. Hence, selected properties are put on

the market for sale, and acquisitioddisposition becomes the dominant practice in the office sector.

Two major Canadian-based real estate companies, Oxford Propecties Group, the Mth-largest

Canadian real estate company with $3.4 billion in assets in 1999 (al1 figures are in Canadian dollars),

and Cadillac Fairview Corporation, the third-largest wwi almost $5 billion, exemplify the modes of

operation used by different companies in different phases of the corporate life cycle. Oxford was

formed in 1960 as an entrepreneurial construction company in Edmonton, Alberta. In its first four years,

Oxford developed properties (rnainly office buildings) for sale, based on agreements that it concluded

prior to construction. In this early period, Oxford used the development profits of each project to initiate

its next development Later, it teamed with institutional investors (two life insurance companies and a

trust company) and this association provided the leverage needed for the development of larger sale

office buildings in multiple locations (Oxford Property Group, personal communication; Goldenberg,

1981).

The access to capital via association with powerful partners enables the pursuit of above-

average projects in ternis of complexity and size. This type of company holds certain properties for long

periods of time and uses them as collateral for future loans, and at the sarne time, as income-producing

properties. The Fairview Corporation, founded in the late 1950s, one of the predecessors of Cadillac

Fairview, was able to pursue the development of large-scale projects as a result of the backing by

'industrial capital' (in this case, the Montreal-based Seagram Distilleries). Moreover, Fairview used

partners to finance and hold its large-scale developments. Its most notable development projects were

joint ventures with powerful corporations. The Toronto-Dominion Centre in Toronto (the largest office

complex in Canada, with more than 4 million square feet) was a partnership with the Toronto-Dominion

Bank (one of the five largest Canadian banks). In two additional complexes, the Pacific Centre in

Vancouver and the Eaton Centre in Toronto, Cadillac Faiwiew teamed up with the Toronto-Dominion

Bank and what was then one of Canada's largest retailers, the T. Eaton Company (Cadillac Fairview

Corporation, various Annual Reports; Goldenberg, 1981).

Until the mid-1980s, Oxford had a balanced two-track strategy. It had developed office

buildings across Canada and in the United States, and at the same time bought and sold existing

properties. In the late 1970s, Oxford acquired one of Toronto's largest office developen, YBR

Propeities, and a large office portfolio in the U.S. By the mid-1980s, before the collapse of the office

market, Oxford had disposed of its entire U.S. portfolio as well as selected office buildings in Toronto,

including its interest in the development of one of the largest office complexes in Toronto's Financial

District, BCE Place (2.5 million square feet). Since the mid-199ûs, due to the continuous slump in the

real estate market, the injection of new capital into Oxford, and the presence of new partnen, Oxford

has adopted an aggressive acquisition strategy. In 1995, Oxford's total office portfolio was 7 million

square feet and the Company's assets were $430 million (Oxford Properties Group, 1995 Annual

Report). By 1999, Oxford's office portfolio had more than tripled to 24 million square feet and its asseh

had increased eight-fold to $3.4 billion (Oxford Properties Group, 1999 Annual Report). Unlike

Oxford's, Cadillac Fairview's focus in the 1970s and 1980s was on development; during this period,

Cadillac Fairview developed office buildings; the acquisition of existing buildings was a less important

component in the Company's strategy. However, during the period when the office market was

depressed in the 1990s. Cadillac Fairview, as did al1 other Canadian-based real estate companies,

shifted its mode of operation from development to acquisition and disposition (Cadillac Fairview

Corporation, 1 997, 1 998 Annual Repo~s).

Real estate companies engage sirnultaneously in the development and trade of office

buildings. The balance between development and trade depends of the position of the building cycle at

that tirne and the financial strength of the real estate company. Different phases in the building cycle

generate distinct responses by real estate companies and the financial strength which depends on the

stage in the life cycle of the real estate company and its business partners, determine the configuration

of the company's mode of operation.

5.2 Switching Between Property Types Major shifts between property types as executed by selected large real estate companies are

presented in Table 5.1. Wihin the real estate sector, the development of residential properties in the

1960s and 1970s constituted a substantial share of the activities of many diversified (engaged in

residential and commercial development) real estate companies in Canada.

Some of the major real estate companies trace their origins to residential development.

Cadillac Developrnent Corporation was mainly a residential developer until the merger with Fairview in

1974; Campeau Corporation started its real estate business as a home-builder and was prirnarily a

residential developer until the late 1970s; and Bramalea, originally a residential developer, expanded

into commercial real estate in the early 1980s (Annual Reports of these cornpanies). However,

beginning in the early 1980s. residential development was perceived as pmblematic among divenified

real estate development companies. Residential developrnent. particularly apartment buildings, meant

potential friction with muitiple tenants in a highly regulated environment. In contrast, commercial

developrnent invotved a limited number of parties, namely corporate tenants in a largely unregulated

environment (Feagin and Parker, 1990). Therefore, most of the divenifed real estate development

companies tumed to commercial real estate portfolios, with residential propecties constituting a

diminishing segment of their operations. This trend follows the perception that commercial assets are

incorne-producing propeities with long-terni leases and price escalation clauses, while the residential

rental assets are more volatile and less profitable.

Table 5.1 Major switching practices of selected large real estate companies (by property type)

Company From To When Daon Residentiat Commercial 1981

Cadillac Fairview Residential Commercial 1982

Campeau Residential Commercial 1 983

Marathon Retail Office 1 996

TrizecHahn Retail Office 1998

Source: Annuai Reports of companies.

By the mid-1980s, most of the divenified cornpanies in Canada had pulled out of residential

development and focused on commercial development (several of the large residential developers

experienced financial difficulties in the early 1980s). By 1981, as interest rates rose and residential

mortgages becarne more expensive, Daon Developrnent Corporation (Canada's fourai-largest real

estate cornpany in 1981) had decided to reduce its residential portfolio, and concentrate on land and

commercial income properties (Dam Development Corporation, 1981 Annual Report). Also, coinciding

with the skyrocketing interest rates, Cadillac Fairview disposed of al1 of its residential properties

between 1982 and 1985 (Cadillac Fairview, 1982,1985 Annual Reports). In 1983, Campeau adopted a

similar strategy by concentrating solely on commercial real estate operations and by disposing of al1

residential propeities (Campeau Corporation, 1983 Annual Report). In the late 1 9 9 0 ~ ~ with the

reemergence of the residential market in Canada, some diversified companies retumed to investing in

apartment buildings. In 1999, GWL Realty Advison, a wholly owned subsidiary of Great West Life

Assurance Company, and the manager of real estate assets for small and medium sized pension

funds, was attempting to sel1 some of its office buildings and acquire apartment properties (National

Posi, April 16, 1999).

Capital switching practices are not confined to shifting properties between the residential and

the commercial realms; capital redeployrnent is likely to occur within the commercial domain too. In

1998, the Canadian-based real estate Company TrizecHahn Corporation sold its entire U.S. retail

portfolio for $2.6-billion (U.S.) and re-deployed the proceedings in office properties (20 million square

feet in the U.S. and six million in Canada), expecting to increase significantly its return on eguity.

TrizecHahn's strategy was '... to rotate your capital to seIl out of lower-growth assets and buy into

hig her-growth ones" (TrizecHahn Corporation, 1 998 Annual Report, p. 5). TrizecHahn initially tried to

maximize the revenue stream from its shopping centre portfolio. However, as slow growth in retail sales

and ever-increasing competition among retailen made it difficutt to generate above-average retums,

TrizecHahn decided to sel1 its entire retail portfolio (TrizecHahn Corporation, 1998 Annual Report). The

concurrent buying of office buildings was also advantageous for tax reasons. Under U.S. tax law,

TrizecHahn had to reinvest those proceeds in the U.S. or pay capital gains taxes (Globe & Mail,

September 4, 1998). This financial 'juggling' illustrates the tradability of real estate properties and the

benefits that accrue from capital switching and tax laws. In eady 2000, TrizecHahn revealed a plan for

another round of restructuring. The depressed Canadian real estate stock prices and its own

depressed share price (TrizecHahn's stock pnce was trading at a 45 percent discount to the company's

net asset value) were considered as the prime incentive for an anticipated sweeping restructuring. In

June 2000 TrizecHahn sold the majority of its Canadian office portfolio (1 1 million square feet) totaling

$1.7 billion. The proceeds will be used to buy the Company's shares, and to invest in technology

ventures (TrizecHahn Corporation, Press Release, June 8,2000).

Another type of capital switching occurs not strictly between types of properties but between

properties of different age. Real estate companies tend to rotate capital within their portfolios by

upgrading their holdings. This practice invoives the construction of new buildings and shifting tenants

frorn their old premises to the newer buildings. Some office space users retain long-terni relationships

with their space providers (the real estate companies). These close relationships enable real estate

developers to build a new building knowing that they will be able to relocate tenants to the new

develapment. This practice is either a nsuit of the tenant's growing space needs that cannot be

accommodated within their old office premises or a result of inducements made by the developer. This

practice enables real estate companies to retain development gains and at the same time increase the

rental stream, since newer buildings command higher rents than older ones. In addition, real estate

companies prefer to own highquality pmperties. The highest quality properlies in the office-building

sector are class 'A' buildings. Over the long fun, cbssA office buildings experience lower vacancy

rates, and are therefore more resistant to slumps in rental income than lower quality buildings. Hence,

these highqualw properties are obtained eîther through development or acquisition.

Despite its recent transformation in the mid-1990~~ Cadillac Fairview retained ownenhip of its

flagship projects: the Pacific Centre in Vancouver and both the Toronto-Dominion Centre and the Eaton

Centre in Toronto. These constiMed its core portfolio. At the same time, Cadillac Fairview disposed of

most of its srnaller, older, and freestanding office buildings (Cadillac Fairview Corporation, vanous

Annual Reports). However, seiected office buildings, usually large-scale, are upgraded through

continuous investment. Although the fint tower of the Toronto-Dominion Centre was completed in

1967, it is still classlied as class-A building as a result of renovations made by the ownen (Cadillac

Fairview and the Toronto-Dominion Bank). This process of upgrading the Toronto-Dominion Centre has

been pursued to keep tenants from moving to newer buildings in Toronto's Financial District. The

importance of flagship properties was shown in one of the largest real estate transactions in Canada. In

the second haff of 1999, the Royal Bank of Canada sold its real estate portfolio as a package. This

included the Bank's head office building in Toronto and a large number of small-to medium-sized

buildings spread across Canada. fhe main attraction to acguire the whole package was the Bank's

'gold-towered' head office complex in Toronto's Financial District. The capital value of the head office

cornplex was over one-han of the total package, and it is 'one of Toronto's most distinctive office

towers, instantly recognizable on the city's skyline" (Toronto Star, Septernber 23, 1999, D4). This

distinctiveness was padayed into higher rents and capital gains. Also in 1999, 08Y Properties

Corporation purchased the remaining 70 percent interest of the company's flagship, First Canadian

Place (before it owned 30 percent interest). This purchase was made possible in part as a result of the

disposition of interest in a smaller North York office building. O&Y acquired 51 percent interest in the

North York office building in 1997; the Company raised the building's occupancy and increased retum

on investment. Two years later, in 1999, it realized the gains and reinvested the proceeds in First

Canadian Place (OBY Properties Corporation, 2000 Annual Report).

The largest and the most distinctive office buildings are assets that real estate cornpanies

prefer to keep. These companies dispose of propeities that they consider noncore, meaning that they

produce less retum on capital and focus of the larger buildings which have better financial prospects.

This philosophy is summarized in the strategy of 08Y Properties Corporation: "enhance value, realize

capital appreciation and then redeploy the capital into new growth-oriented investrnent opportunities"

(O&Y Properties Corporation, 2000 Annual Report, p. 27).

5.3 Switching Between Locations at the National Scale The spatial configuration of o f f i porîfolios controlled by Canada's largest real estate companies

during the last 25 years shows a continuous supremacy of the top-level cities of the Canadian urban

systern (Table 5.2). However, within the set of top-level cities, major shifts ocwrred over this 25-year

time period.

Table 5.2 The largest owners of office space by the location of their Canadian office portfolio, selected yean, 1975-99 (percentage)

Year Toronto Calgary Montreal Vancouver Edmonton Ottawa Topsix share

. . -- - . .

Notes: In 1999, the largest Canadian-based owners of ofiice buildings owned about 100 million square feet of office space. The largest real estate companies by their Canadian office portfolio: In 1975: Trizec Corporation, Olympia 8 York Developments, Cadillac F a i ~ e w Corporation. Oxford Developrnent Group, Campeau Corporation, Manufacture6 Life, Marathon Reatty, MEPC, and YBR Properties. In 1982: Trizec, Olympia 8 York, Cadillac Faiwiew, Oxford, Campeau, Marathon, Manufactures Life, Daon Development Corporation, Bramalea Limited, and Hammerson Canada. In 1989: Trizec, Olympia 8 York, Cadillac Fainriew, Oxford, Campeau, Marathun, Bramalea, Manufacturers Life, Hammerson, BCED Development Corporation. In 1999: TrizecHahn Corporation, Cadillac Fainiew, Oxford Properties Group, Brwkfield Properties Corporation, O&Y Properties, ClBC Development Corporation, Manulife Financial, BentaIl Corporation, H&R REIT, Canadian Real Estate lnvestment Fund No. t (GWL Reaity Advisors), and Dundee Realty Corporation. Sources: Real estate companies' Annual Reports. For Olympia 8 York Goldenberg, 1981; biographies and varbus newspaper articles.

In 1975, the two large concentrations of office portfolios controlled by the largest companies were in

Toronto and Montreal; almost 57 percent of the office portfolio was in these two Census Metropolitan

Areas. By 1982, Calgary and Edmonton's share had more than doubled from 11 percent of the

portfolios of the large real estate companies in 1975 to 25 percent (Table 5.2). Correspondingly, the

share of Toronto and Montreal had decreased to 47 percent of the companies' portfolios, with Montreal

showing a particulariy steep drop in its share. After 1982, Calgary's share has remained at a constant

level, while Toronto's share has increased substantially. During the mid-to-late 1 980s, substantial office

development occurred in Toronto; between 1982 and 1989 Toronto's share had increased from 35 to

almost 43 percent of the companies' portfolios, while the shares of other cities, except for Edmonton,

had decreased. Economic growth and massive office construction in Toronto in the 1980s, and a

gradua1 econornic recovery in the second hatf of the 1990s have reinforced its position as the most

attractive location for the largest real estate companies. Toronto's share has continued to increase and

by 1999, almost 46 percent of the largest companies' portfolios were in Toronto. Ottawa's share has

decreased sharply in the 1990s (as a resuit of the demise of two of the largest real estate companies

with substantial office holdings in Ottawa, Olympia & York Developments and Campeau Corporation)

while the shares of other cities have remained relatively stable.

The analysis of the office portfolios of the largest real estate companies shows that their

strategies are a result of surfacing opportunities during the different local building cycles and the

strategy by real estate companies to create a critical mass in selected locations. Successful real estate

developers are able to identify and take advantage of these opportunities by shifting some of their

resources to the fast-growing regions, without ignoring their well-established investment nodes.

Locations that present unsatisfactory performance (relatively low retum on capital) are susceptible to

withdrawal or reduction of their share in the large real estate companies' portfolios. This leads to the

channeling of resources to places that are expected to produce high growth rates and higher retum on

capital than slower growing places. Nevertheless, where a channel is initiated and a critical threshold is

reached, existing investment acts as a magnet attracting fuither investrnent, perpetuating the

attractiveness of that setting (capital attracts capital, a process articulated in cumulative causation

theory, see Myrdal, 1957; Clark et al., 1986). Thus, when a Company establishes a 'presence' in a city

it is bound to stay in that location even if circumstances change, for example, a downtum in the building

cycle. Therefore real estate companies juggle between seizing expected opportunities by moving

elsewhere, and taking full advantage of present conditions by staying in their farniliar environments.

Buildinq cycles reflect structural conditions which are in fact the sum of cumulative actions of space

users and providers. They are used as a heuristic device that might exptain the switching practices of

real estate cornpanies.

5.3.1 The geography of office building cycles in Canada

Research on the geography of office building cycles in Canada is practically non-existent; however,

inspiration can be drawn from other studies. Leitner's study (1994) on office building cycles in major

U.S. rnetropolitan areas indicates spatial divergence between cities. Henneberryls investigation of

British cycles (1 999) suggests spatial convergence between different regions. Except for using different

time frames, different spatial scales and different financial indicators, the basic distinction between the

United States and Britain is found in the extent of spatial integration. While the U.S. regions have

dramatically different structural and economic trajectories, which exhibit 'weak' spatial integration,

Britain has a highly htegrated economy with much less marked regional differences (Hennebeny,

1999).

In ternis of spatial integration, Canada's position is between that of the U.S. and that of Britain.

On the one hand, the size and different structural trajectories rnake Canada similar to the U.S. On the

other hand, the highly integrated financial system, a prerequisite for real estate development, makes

Canada similar to Britain. This position suggests that spatial variations in building cycles are likely to

exist in Canada. To substantiate this argument, building cycles at three spatial scales national,

provincial and metropolitan are examined using the value of office-building pemits issued.

National cycles

At the national level three office-building cycles were identified, each spanning about 13 years (Figure

5.2). The first cycle commenced in the rnid-1950s (not shown in the graph) and ended in 1970. Until the

early 1970s, the value of office-building penits did not surpass the $1-billiodyear mark, except for the

peak year of 1965. The second cycle commenced in 1971 and ended in 1983; during this cycle. the

value of penits was at a significantly higher level, over $2 billion in each of seven years out of the 13-

year cycle. During this cycle, 1977 and 1981 were the odd yean; however, these extreme years cancel

each other out. The third cycle began in 1984 and ended in 1996. This is the 'classic' cycle with a

distinct peak in 1989 and a clear trough in the mid-1990s. A new cycle is at its infancy as the value of

office-building pemits has been on the rise since 1997.

The late stait of office development in the postwar period in Canada was partially a result of

institutional regulations. Up to 1954, residential development was privileged in the allocation of building

materials, since under the National Housing Act, the construction of housing took priority over

cornmerciai development. As restrictions on building materials for commercial real estate were lifted,

commercial development was possible and more capital was channeled into c~mmercial development,

namely industrial buildings, shopping centres, and office buildings.

The second cycle (1971-83) is an unusual one, since it had a plateau rather than a distinct

peak. This plateau lasted for almost a decade, from 1974 to 1982. During this time office building

perrnits were almost at the constant level of approximately $2 billion annually. In this cycle, two years

present 'abnormal' values: 1977 and 1981. The decrease in building perrnits in 1977 was a result of

short-terni econornic recession. In addition, plans ta restrict downtown developrnent in the mid-1970s in

several Canadian cities (Toronto, Montreal, Vancouver and Ottawa) created an atmosphere of

uncertainty among real estate companies (Canadian Buildng, August, 1974; August. 1976). The

increase in office building pennits in 1981 paralleled the oil and gas boom in Albeila, resulang in an

unprecedented volume of building pemits in that province. In general, the rapid growth of producer

services jobs (FIRE and business services) during the 1970s, which are housed primarily in office

buildings, had encouraged the development of office space. Between 1971 and 1981 employment in

producer services had increased by 91 percent; at the same time, total employment in Canada

increased by less than 47 percent (Coffey, l996a). In addition, in the 1970s, the Canadian commercial

real estate industry had been consolidated, and Canadian-based real estate companies expanded their

operations at home and abroad (Goldenberg, 1981; see section 3.1.3).

Figure 5.2 Value of Office ~uilding Permits in Canada (constant dollars)

Soum: StabQtics Canada. B u W i pennik, Catalogue No. 64-203; for 1998-99. Statistics Canada. CANSIM Matrix No. 4073.

The third cycle (1984-96) reflects most clearly the expansion and contraction of the economy. Until the

late 1980s, the Canadian economy was expanding; employment in producer services increased by

more than 40 percent in the 1980s; in cornparison, total employrnent increased by less than 20 percent

(Coffey, 1996a). A severe economic recession in the early 1990s coupled with an oveaupply of office

space corning to the market (a resutt of speculative development), had resulted in the near collapse of

office development by the mid-1990s. In 1996, the bottom year of this cycle, the dollar value of office-

building pemits in Canada was at the sarne level as thirty yeaa earlier. Since 1997 office development

has been showing signs of rebounding as the value of building permits has doubled between 1996 and

1999 (Figure 5.2).

Provincial cvcles

Between the eariy 1960s and the late 1990s1 the four largest provinces in Canada (Ontario, Quebec,

British Columbia and Alberta) have accounted for, on average, 94 percent of the dollar value of office

building pemits in Canada (Statistics Canada, Building Permits, Catalogue no. 64-203). The analysis

of the provincial officobuildings cycles indicates that the four largest provinces have quite different

cycles (Figures 5.3 and 5.4).

During the last three decades. each of these provinces has expenenced different office

building cycles as a result of different growth rates. Ontario, the largest Canadian province in terms of

population, had two major peaks, which coincided with national cycles. Ontario's first significant peak

was in 1973-75 (a smaller peak was in 1965), and its most substantial office building boom was in the

second half of the 1980s (peaking in 1989-90). Among the four provinces. Ontario's 1980s peak was

the most impressive (two-and-a-half times the volume of Quebec's peak). Ontario. as Canada's largest

province mirron the Canadian econorny. Quebec, the second largest province, had a peak in office

building pemits in 1965; however, its most significant peak was in 1976. This peak coincided with the

development associated with the 1976 Olympics held in Montreal. Quebec's late-1980s peak was of a

lesser magnitude than the 1970s peak and almost at the same level of its 1960s peak.

The western provinces of British Columbia (B.C.) and Alberta had quite different building

cycles. The third-largest province, British Columbia, had less abrupt cycles than Alberta. British

Columbia's first office construction peak in the mid-1960s, and between the mid-1970s and the early

1990s, the value of permits fluctuated, atthough no significant peaks and troughs were experienced by

the province. The 1980s boom in British Columbia was less extreme than that in Ontario and Quebec.

Like Ontario and Quebec, office-building permits in British Columbia have been at a low level in the

early-to-mid-1990s. Office building cycles in Alberta illustrate an abrupt boom-bust cycle. Between

1961 and 1999, Alberta had one major office-building cycle. Its zenith was between 1978 and 1982,

when Alberta's building permits were higher than Ontario's. At the peak year (1981), the value of

Alberta's office-building permits was 54 percent of the national total, while Ontario's share was 19

percent. This pattern is closely related to the performance of the petroleum industry, a key generator of

Alberta's economy. After 1983, the value of office-building permits in Alberta plummeted; in 1993, the

value of permits was at the same dollar value as in 1970. Unlike other parts of Canada, Alberta did not

experience an off ice-building boom in the 1980s. The value of building permits in Alberta in 1989, the

peak year of office building pemits in Canada, hardly reached one-tenth of the value of Alberta's peak

year 1 981 .

Figure 5.3 Value of Office Building Permits in

Ontario and Quebec (constant dollars)

O N T A R I O

- - *- - QUEBEC

Source: Statistics Canada, Building Permits, Catalogue No. 64-203; for 1998-99. Statistics Canada, CANSIM Matrix No. 4073.

Figure 5.4 Value of Office Building Permits in

BrÏtish Columbia and Alberta (constant dollars)

1961 1966 1971 1976 1981 1986 1991 1 9% Sourœ: Statisücs Canada. Building Permits. Catalogue No. 64-203; for 1998-99, Statistics Canada, CANSIM Matrix No. 4073.

The cunent building cycle, the fouith cycle, which commenced in 1997, is still a rather suggestive one.

There are indications that a new cycle might be undemiay in al1 provinces. Ontario and Quebec are

experiencing their highest increase in offiie building permits in companson to the 1996 trough; British

Columbia is on a steady expansion route since 1995, and Alberta had a sharp increase in 1998

followed by a fall in 1999.

Office building cycles experienced by these four provinces suggest that different 'engines'

shape the Canadian economy at its regional scale and as resuit convergence and divergence pattems

are discemible. Two major metropolitan areas, Toronto and Calgary, epitornize these patterns.

5.3.2 Office building cycles in Toronto and Calgary

Different provincial cycles are demonstrated by distinct inter-metropolitan cycles. As suggested by

Leitner (1994), individual clies are affected by and partmpate in national building cycles because

"...location, that is, site and situation, charactenstics, remains an important factor in influencing the

construction activity" (p. 799). The manageability and the complexity of the office development sector

and the national scope of the large real estate companies make the Canadian case an excellent

candidate for research. The examination of two cities (Toronto and Calgary) in isolation from the

broader Canadian context, assuming that these cities are the onfy alternatives the large real estate

companies consider, might be misleading. When the large na1 estate companies search for

opportunities they scrutinize the Canadian arena as a whole, and since the mid-1970s. the US. market

has been incorporated into their considerations. However, even for these companies space is not

limitless and initial investment in a specific market attracts further investment to that market. In this

case Toronto and Calgary were already major investrnent arenas for the two real estate companies

discussed in this study, Trizec Corporation and Cadillac FaiMew Corporation, before the

commencement of the 1970s and 1 980s building cycles. In addition, during the 1 970s and the 1980s

large real estate companies had a clear preference towards investment in office buildings in Toronto

and Calgary (Table 5.2). This, and the fact that obtaining deep knowledge of al1 major Canadian cities

is beyond the scope of this study, makes these two cities the subject of this inquiry.

An analysis based on the additions of office space in Toronto and Calgary since the late 1960s

suggests three distinct pattems of office development (Figure 5.5). During the first decade, 1969-78,

there was a big difference in absolute tenns between Toronto and Calgary. While Toronto had

additions rneasured in millions of square feet, Calgary's additions were measured in hundreds of

thousands for most of this penod. Ako, their cyclical pattems seern to be opposite; for example, while

Toronto experienced a boom in 1971 -72, Calgary additions were at low levels. For a short time in the

151

late 1970s and eariy 1980s (1 979-82). both cSes exhibited similar patterns and the magnitude of office

construction was almost at par; during 1980-82, Calgary had more additions of ofiice space than

Toronto. However, between 1983 and 1992, the building patterns of Toronto and Calgary had diverged.

Toronto had experienced continuous growth in office space and a major expansion between 1985 and

1991. On the other hand, Calgary's office development was on a minute scale throughout the 1980s,

except for an addition of three large-scale office buildings in 1988 (Financial Post, September 20,

Figure 5.5 Net New Supply of Office Space in Toronto and Calgary

-2000 i Note: For Toronto. net new supply for the CMA~ for Calgary, new supply for the downtown area (1 969-1 978) and for the city (1979-1 999). Source: Royal LePage, Toronto Office Leasing Directory, various years; Royal LePage, Unpublished data. Urban Life Consultants (1 979) Location of Office Employrnent in Calgary.

This analysis shows that Calgary's building cycles are very abrupt, reaching their unprecedented peak

during the early 1980s when in a four-year period its office stock increased more than threefold, later

experiencing only modest growth (Table 5.3). The growth of office space in Toronto was less dramatic,

although between 1981 and 1991 its office inventory had almost doubled. Beginning in the early 1990s,

Toronto has joined Calgaty in experiencing a long period of stagnation (Toronto even experienced an

absolute decline in office stock, see Figure 5.5). In the late 1990s, particularly in 1998-99, both markets

have been showing signs of recovery. In Calgary a number of major office buildings are expected to be

completed in 2000-1 (Globe & Mail, August 3, 1999). In Toronto, construction is also on the horizon

and is proceeding at a faidy rapid pace in several suburban municipalities (Daily Commercial News,

October 1, 1 999).

Table 5.3 The growth of office space in Toronto and Calgary, selected yean, 1978-99 ('000 square feet)

Year Office space Growth of office Offie space Growth of office space (1 97W00) space (1 978=100)

1978 60,352 100.0 8,400 100.0

Sources: Royal LePage, Toronto Office Leasing Directory, various years; Royal LePage, unpublished data; Financial Times, October 25,1982, p. Ag.

Toronto and Calgary are major destinations for investment in office buildings in Canada. Toronto's size

and econornic divers* and Calgary's economic vibrancy and spectacular growth have prompted the

perception amongst real estate companies that these two cities are attractive places for real estate

investrnent. Toronto is the prime location of the largest companies in Canada; measured by total assets

in 1989, alrnost 48 percent of the Canadian headquarters of financial corporations and 44 percent of

non-financial corporations (service, manufacturing, and resource) were in Toronto (Semple, 1 996). This

figure is much higher than Toronto's share in Canada's total service sector employrnent (1 6 percent) or

its share in producer service employment, of 26 percent of Canada's total (Coffey, 1996b). Toronto's

prime role in the Canadian economy is also demonstrated by the fact that in 1998, 193 out of the

largest 500 Canadian corporations had their headquarten in the Toronto metropolitan area (Financial

Post Magazine, 1999).

Calgary's growth has been more cyclical; the predominance of the oil and gas sectors has

fumished Calgary with a high profile status among real estate investon. However, this dependency has

also made Calgary highly susceptible to the fluctuations of oil and gas prices. The extreme

dependence on the energy sector is reflected in the fact that between 70 to 80 percent of the office

space is leased to energy-related fimis, either oil and gas companies or engineering and gas services

companies (National Post, Febniary 10, 1999; Globe & Mail,, August 3, 1999). Like its counterpart in

the U.S. Energy Comdor, Houston, Texas (Feagin, 1987), Calgary has experienced exbeme boom and

bust in office construction cycles. This cyclical nature is directly linked to the volatile character of an oil-

based economy.

Buildinas cycles and office d e v e i o ~ e r s in Toronto

The most recent boom in office development in Canada, during the 1980s, was unique in the history of

office development in Canada. First, the absolute magnitude of developrnent was unprecedented.

Second, unlike in previous cycles, this boom-bust cycle was the most extreme, ffling into the classical

model of buildings cycles. Finally, information on this cycle and the developen that took part in it are

more accessible. In this boom, Toronto attracted developen that had no history of constructing office

buildings in Toronto. Real estate companies of al1 sizes had seized the opportunity of the

unprecedented boom, ranging from small and medium-sized companies to large companies. Minto

Developrnents, one of the largest homebuilders in Ottawa, completed its sole office development in

downtown Toronto in 1989. This move fitted the Company's decision to divenify away from its Ottawa

base (Financial Post, July 17, 1989); in addition, it was clearly supported by the growth of Toronto's

office market in that period. The Centennial Group of Cornpanies, a Halifax-based real estate company,

was active only in Atlantic Canada until the rnid 1980s. In the mid 1980s, the company diversified into

Toronto by building a suite-hotel and an office building, both in Toronto's Financial District (Canadian

Building, 1 988, 1 989).

In the mid-to-late 1980s, real estate cbmpanies specializing in particular regions re-allocated

their resources making holdings in Toronto a significant portion of their portfolios. Unti! the mid-1980s.

the ovemhelming majonty of Campeau's office buildings was in the Ottawa area (in 1984. almost 80

percent of its Canadian portfolio); no major development was outside Ottawa. By 1989, 56 percent of

its portfolio was in Ottawa and 30 percent in Toronto (the remainder was in Montreal, Vancouver and

Edmonton). During the 1980s, Campeau's strategy was to explore potential growth markets:

"Strategically, the Corporation has sought to attain a more dominant position in selected growth

markets rather than competing in centres all across the nationw (Carnpeau Corporation, 1980 Annual

Report, p. 3). In accordance with this strategy it expanded into two major Canadian cities: Toronto and

Vancouver (Campeau Corporation, 1982, 1988 Annual Reports). The commencement of its most

ambitious project, Scotia Plata (part of the head office complex of the Bank of Nova Scotia; the Bank

was also the joint venture partner in this project) in Toronto's Financial District in the mid-1980s.

upgraded Campeau to the league of the Iargest real estate companies. It progressed fmm a residential

developer to niche developer (mainly engaged in the construction of office buildings for the federal

govemment) and to a divenified real estate corporation. Until1981, Daon Development Corporation (in

1985 acquired by Bell Canada Enterprises and with its name changed to BCE Development

Corporation, or BCED) was active mainiy in Western Canada and the U.S. (Daon Development

Corporation, 1981 Annual Report). By the mid-1980s, BCED had identified Toronto as the only market

in Canada for office buildings (Globe & Mail, Febniary 22, 1986). The choice of Toronto as the best

Canadian office market by BCED resulted in the commencement of its largest office development in

Toronto. In 1984, BCED and Oxford Development Gmup announced a joint venture to develop BCE

Place in Toronto, a 2.5-million square feet office complex (Globe 6 Mail, March 13, 1986). In 1986,

Oxford sold its share in the BCE development site to BCED (BCE Place was completed in 1992). In

addition to the interest in downtown Toronto, BCED had purchased a site in the Mississauga City

Centre in 1985 for long-term deveiopment of one million square feet of office space after outbidding the

Cadiliac Fairview Corporation (Globe 8 Mail, October 3, 1985).

At the same time, foreign investon had partially redeployed their capital within the Canadian

urban system by shifting their interests from other Canadian cities to Toronto. The fint office

development of Hammerson (Canada) was in Calgary in the late 1960s. By 1982 Hammerson had

completed a four-building compkx in Calgary (Bow Valley Square) and was ready to go ahead with

another tower. The design for the fiih tower cornrnenced in late 1981, but as a result of the 1982

recession, development was put on hold. However, h i l e postponing the development of the f i ih tower

in Calgary, Hammerson had completed an office building in Toronto in 1983 (Hammerson's first office

building in Toronto was redeveloped in 1971). Hammerson's involvement in the Toronto area

continued in 1984. when it acquired a large property portfolio in Mississauga, which included 180 acres

of land, four office buildings and a sizable shopping centre (Square One).

During the 1990s real estate slump, companies largely abandoned office development,

disposed of their noncore properties, and focused on their most valuable assets. Marathon Reaîty, the

real estate am of Canadian Paclic Railways, has tumed itseif into a Company that focused on

downtown office buildings in the early 1990s (Globe di Mail, March 4, 1996). Behveen 1993 and 1996,

Marathon was in suivival mode seiling shopping centres, office buildings, and land to reduce its debt.

The transformation has left Marathon with 4.8 million square feet of office space in 1995, about one-

half of its portfolio size in the peak year, 1993 (Marathon Realty, 1993, 1995 Annual Reports). The

result was a set of highquality, large-sale office buildings located in Toronto, Montreal and

Vancouver.

Buildina cycles and office develo~ers in Calaaw

Calgary has the largest office inventory in Westem Canada; in 1999 it had 42 million square feet, 7

million more than Vancouver (35 million) and twice as much as Edmonton, which had the second

largest office inventory in Alberta (Royal LePage, 1999). Most of Calgary's office stock was built during

the econornic boom (oil and gas driven) of the late 1970s and the early 1980s. Between 1978 and

1982, the golden era of real estate development in Alberta, Calgary's office stock experienced a

phenomenal growth. The growth was so immense that in 1981, the peak year in Calgary's office

building boom, the value of office building permits was the second largest in North America, exceeded

only by New York (Whitehead, 1987). The overwhelming confidence in Calgary's pmspenty was

illustrated in the planning of a 75-story office building in the early 1980s (Trade and Commerce, August

1981). This building, scheduled for a 1984 completion, was the 'victim' of the early 1980s recession

that hit Calgary in 1982.

During its burst of growth, a total of 22.5 million square feet of new office space was added to

Calgary's inventory, more than tripling its 1978 inventory (Royal LePage, unpublished data). In

cornparison, between 1986 and 1991 (the peak of the office building boom in Canada) only 3 million

square feet were added to Calgary's office stock (Royal LePage, unpublished data); this figure

represents merely 10 percent of its 1985 inventory. At the same time 47 million square feet were added

in Toronto, representing 51 percent of Toronto's 1985 inventory (Royal LePage, Toronto Office Leasing

Directory, 1984, 1992). Calgary did not fully recover from its early-1980s bust of office construction.

Notwithstanding this, confidence in Calgary's economy was renewed in the second half of the 1990s as

the construction of a number of large-scale office buildings has awarded Calgary the tale 'Western

Canada's head office capital' as it has the second-highest (or third-highest, after Toronto and

Montreal) number of head offices in Canada (Globe & Mail, August 3, 1999). Despite attempts at

economic diversification, Calgary's volatihty is still based on being a predominantly an oil-based city;

this is best illustrated by the insight of a Calgary real estate broker: 'ln Calgary, the mood seems to

change week by week, according to oil pricesw (Globe & Mail, August 3, 1999).

Real estate developers navigate their operations by switching capital in accordance with 'hot

spots' created during building cycles. Like Houston in the 1980s (Feagin, 1987), Calgary was the

Canadian 'hot spot' in the late 1970s and eariy 1980s as many developers flocked to that city. Calgary

reinforced its position as the energy capital of Canada as many oil and gas companies accompanied by

ancillary service companies expanded their operations in Calgary (Royal LePage, Toronto Office

Leasing Directory, Fall 1979). In this booming economy, companies based in western Canada, foreign

companies, and the largest Canadian-based companies expanded or pioneered office development in

Calgary.

Due to the dominance of the energy sector in Calgary, a common feature of office

development was joint ventures between real estate companies and oil and gas companies. In this

arrangement, oil companies hold full or partial ownenhip of the office buildings. Partnenhips such as

Daon and Chevron, Trizec and Husky Oil, and Canada Square and Gulf Canada, resulted in joint

developments. Furthemore, oil and gas cornpanies were the prime tenants in these buildings. In the

Toron fo-Dominion Square, the main tenants were Dome Petroleum and Home Oil; in the Calgary Place

tower, Mobil Oil Canada and Canadian Superior Oil were the main tenants; in the FMh and Fifth tower,

Texaco Canada and C.D.C Oil and Gas were the major tenants (Oxford Development Group; Trizec

Corporation, Annual Reports, various years).

Concunently, foreign companies expanded their investments in Calgary. Hammenon

(Canada) commenced its enteprise in Calgary in the late 1960s completing two out of four buildings in

their Bow Valley Square complex before the late-1970s boom (1972 and 1975) and two additional

buildings in the midst of the boom (1980 and 1982). Another British-based company, Rank City Wall,

cornpleted a medium-site office building in Calgary in 1977 (at the same period, it was also active in

office development in the Toronto area). In addition, the largest office complex in Calgary (the twin-

tower Petro-Canada Centre, 1.6 million square feet) was developed in the early 1980s by the

partnership between a major oil company, Petro-Canada, and a foreign investor (ARCI).

ln the late 1970s, major Canadian-based real estate companies have either expanded their

operations in Calgary, such as Marathon Realty, the real estate a m of Canadian Pacific Railways, or

entered Calgary for the first time. The prime example of a new entrant to the Calgary market that

'coincided' with the building boom was Olympia & York Developments (O&Y). Until the mid-1970s,

0 8 Y major areas of operation in Canada were Toronto and Ottawa. Following the shortage of office

space in Calgary and a favourable potential for growth, 08Y funneled capital to this prornising territory.

However, OBY was able to target Calgaiy as a result of previous relations with a major oil company.

The previous relationship between O&Y ana Shell Canada through the construction of Shell's data

centre in suburban Toronto in the 1960s (see section 4.2.1) paved the way for the development of the

Shell Centre in Calgary in 1977. The next project of O&Y, the Esso Plaza (1.5 million square feet), was

completed in 1981 (OBY completed another building in Calgary in 1988). Other companies that did not

have previous expenence in Calgary followed this move: Cadillac Fairview, Campeau, and Sun Liie

Assurance Company. Sun Life's three-building complex (over one million square feet, completed

between 1981 and 1984) was one of the largest-ever developments taken by a life insurance Company

in Canada. When the recession hit Calgary in March 1982, many projects were either canceled or put

on hold. By late 1982, as the racession deepened, the construction of 22 buildings (with a total of 17

million square feet) at different development phases was either delayed or canceled (Calgary HeaM,

October 5, 1982).

Although very few office development projects were commenced during the slump in office

development in the 1980s. large real estate companies remained in Calgary, and in the late 1980s they

renewed their interest in the city. In the late 1980s, Oxford. TNec and Olympia & York completed office

buildings in Calgary (Financial Post, March 2, 1987). However, when the market had continued to

expenence stagnation in the late 1980s and the fint haif of the 1990s. several companies like Cadillac

Fairview and Hammenon sold their office buildings in Calgary.

Until the early 1970s. large Canadian office developen were active in vety defined and limited

territones, confined mainly to the two largest centres, Toronto and Montreal. These included Olympia 8

York, Cadillac Fairview, and Trizec. As a resuk, before the boom of the late 1970s and early 1980s,

only local and regional developen operated in Calgary. Following the boom, most of the large

Canadian real estate companies launched operations in Calgary. In Toronto, most of the large

developen were present before the 1970s. In both cities, large companies developed the largest office

buildings, and once they reached a certain threshold, these cornpanies have maintained their presence

in these cities.

5.4 Three Dimensions of Capital Switching and Building Cycles:

Two Case Studies To demonstrate the interaction between building cycles and developersl practices, two firms will be

examined in detail. The two companies under investigation, the Trizec Corporation and Cadillac

Fairview Developrnent Corporation, illustrate the shifting practices of real estate companies resulting

from the different metropolitan building cycles experienced by Toronto and Calgary. The investigation

also shows the particular paths adopted by these companies. Trizec and Cadillac FaiMew have been

two of the largest Canadian public real estate companies during the last three decades. In 1999, the

total assets of TrizecHahn Corporation (the successor of Trizec) were $12 billion, and the assets of the

Cadillac FaiMew were almost $5 billion. Both companies have had divenified commercial propeity

podfolios (shopping centres, office buildings, and multi-use complexes) situated in various cities across

North Arnerica. During this time period they switched between modes of operation, becoming traders

during building cycle downtums and retuming to development when signs of recovery were detected.

When downtums had severe effects on certain property types, Trizec and Cadillac F a i ~ e w disposed of

these properties and developed or acquired other types in uptums. In a similar way, aiey shifted their

spatial focus across different locations.

5.4.1 The Trizec Corporation

The practices of Trizec have changed substantially since its incorporation in 1960. In its early phase,

Trizec was mainly a developer and owner of propeities for the long terrn; in its most recent phase it is a

'dealer', buying and selling properties based on short-ten opportunities. Further, Trizec went from

being a single-purpose developer to a diversified developer (office buildings, shopping centres,

retirement lodges) to mainly an office owner. Finally. it has divenified spatially. From being heavily

Montrealsriented in the 1960s and early 1970s. Trizec had diversified into Calgary in the 1 WOs, and to

Toronto in the 1980s. Since the eariy 1980s, these three cities have accounted for about threequarten

of Trizec's Canadian office portfolio (Table 5.4).

Table 5.4 The Canadian office portfolio of Trizec, selected yean, 1968-99, percentages (1)

City 1968 1975 1982 1989 1999 Montreal 100.0 (2) 59.1 35.6 21.7 36.1

Toronto O 2.6 11.0 28.1 16.2

Calgary O 17.2 25.6 24.6 24.3

Edmonton O 7.1 4.2 10.3 7.0

Vancouver O 8.8 6.0 4.1 3.8

Ottawa O O O 0.6 7.4

Other O 5.2 17.6 10.6 5.2

Total 100.0 100.0 100.0 100.0 100.0 Total rentable space 3,900 9,500 14,000 21,800 16,200 ('000 square feet) Notes: (1) lncluding buildings under construction. (2) In 1968, viitually Trizec's entire office portfolio was in Montreal. Source: Trizec Corporation and TrizecHahn Corporation, Annual Reports.

Until the late-1960s, Trizec had office buildings only in Montreal, epitomized by its flagship complex,

Place Ville-Marie (3 million square feet of office space). The Montreal portfolio was essentially its entire

portfolio (Trizec Corporation, 1968 Annual Report). Following the purchase in 1970-71 of two real

estate companies with major holdings in Western Canada, its scope had expanded to include Calgary,

Edmonton and Vancouver (Trizec Corporation, 1970 Annual Report). However, until 1978, Montreal

propetties continued to hold more than one-half of Trizec's Canadian office portfolio (Trizec

Corporation, 1978, 1979 Annual Reports). Coinciding with the beginning of Calgary's real estate boom

in the mid-1 970s, the booming of Alberta's oil and gas sector and the decline of Montreal as a financial

centre, Trizec raised its stakes in Calgary. In 1976. Trizec's ownenhip changed and the Company

moved of its executive office to Calgary and in 1980 al1 head office operations were consolidated there

(Goldenberg, 1981). During Calgary's boom period (late 1970s to eady 1980s). Trkec had completed

three office buildings in Calgary. These three projects increased Trizec's office poiffolio in Calgary from

1.6 million square feet in 1975 to 3.8 million in 1983 (Trizec Corporation, various Annual Reports). The

high dependence on the energy sector was demonstrated by the fact that in al1 three buildings the

major tenants were oil and gas companies, and in one of the three projects an oil Company was a

partner.

Calgary's focal position in the Company's strategy and the confidence in its future was best

expressed in the President's message in the 1981 Annual Report: We believe Calgary will continue to

be the focal point of real estate development in Canada during the next f i e yean" (Trizec Corporation,

1981 Annual Report, p. 4). This confidence was also expressed in launching Trizec's largest-ever

project in Calgaiy, Banken Hall. in 1980. The completion of this two-tower complex (1.8 million square

feet) was expected in 1984. However, the recession of 1982 put this development on hold (Calgary

Herald, October 21, 1982). The groundbreaking for the first tower was in late 1986 (completed in 1989).

after vacancy rates of class-A buildings in the core had dropped below the 10 percent mark. The

construction of the second tower started in 1998 (completed in June 2000) as vacancy rates of class-A

office buildings in Calgary's core have dropped to almost an all-time low of 1.4 percent in 1997

(Financial Post, June 5,1998; Royal LePage, unpublished data).

Until the late 1 9 7 0 ~ ~ Toronto's office market was of secondary importance to Trizec. In 1971,

Trizec developed its first office building in Toronto, a medium size building on the periphery of

Toronto's Financial District. In the late 1 970s, Trizec, with a Toronto-based developer as a partner, had

initiated the construction of the first phase of a f -3-million square feet project in Toronto's downtown,

the Atrium On Bay (first phase completed in 1981, second phase in 1984). Realizing in the early 1980s

that Calgary was experiencing a severe slurnp, and since the Company thought further diversification

was needed, Trizec had tumed to Toronto. Consequently, Trizec's stake in Toronto's market rose

substantially from 11 percent of its Canadian office portfolio in 1982 to 28 percent in 1989 (Table 5.4).

During the mid-19805. Trizec focused its office development effoits on major financial centres

in North America. Toronto, along with New York and Los Angeles, was considered such a centre.

Trizec identified these cities as "markets offering long-terni potential due to their strong financial

service-based economies and their consistent record of overall growth' (Trizec Corporation, 1986

Annual Report, p. 13). The importance of Toronto as an office development node was recognized

through the establishment of a regional office in Toronto in 1984; until then the Eastern Canada

regional office was in Montreal and Toronto only had a small office in charge of shopping centre

planning (Trizec Corporation, 1984 Annual Report). More importantly, in 1984, Trizec invested in the

Toronto- based real estate Company Brarnalea Limited (Trizec Corporation, 1 984, 1 988 Annual Report).

One of the major assets of Bramalea was its Toronto portfolio, in particular, the substantial

office portfolio. In 1983 over one-haif of Bramalea's Canadian office floor-space was in Toronto and a

number of projects were at the planning stage (Bramalea, 1982, 1984 Annual Reports). Trizec, which

had a very small portfolio in Toronto, wanted to capitalire on Toronto's fastexpanding office market.

Trizec's incremental increase in Bramalea ownenhip between 1984 and 1988 reflects its growing

interest in Toronto. In 1984 Trizec acquired 31 percent ownenhip interest in Bramalea, it increased its

share to 65 percent in 1986, and to 70 percent in 1988 (Trizec Corporation, various Annual Reports). In

1987, Trizec launched its 'crown-jewel' development in Toronto, a 57-story building, the Bay-Adelaide

Centre, Iocated at the heart of the Financial District. When construction started in late 1989, Toronto's

office market was already beyond its peak. Vacancy rates of class-A office buildings (the type of

buildings that the Bay-Adelaide had to compete against) in Toronto's Financial District increased from

3.1 percent in 1987 to 7.8 percent in 1989 and to more than 17 percent in 1993 (Royal LePage,

Toronto O f ice Leasing Directory, various yean). As a resuit, the Bay-Adelaide Centre, consisting of an

underground parking garage and partial elevator core, was rnothballed indefinitely (Globe 8 Mail,

August 19, 1 993).

In the late 1990s, the Canadian office market has show some indications of recovery,

including lower vacancy rates, higher rental rates, and higher absorption rates. Consequently, the

interest of the T ;izecHahn Corporation (under new owners since 1994 and a new name since 1996) in

Toronto and Calgary rebounded. In 1998, the vacancy rates of class-A office buildings in Toronto's

Financial District and in Calgary's Core were 5.1 and 2.6 percent respectively, down frorn 20.3 and

17.2 percent in 1992-93 (Royal LePage, Canadian Office Guide, 1999; Royal LePage, 1993, 1999).

The second phase of Calgary's Banken Hall (800,000 square feet) was completed recently, however,

Toronto's Bay-Adelaide Centre is still on hold, since no anchor tenants have been found so far.

In addition to spatial switching of capital, particularly between its largest Canadian office nodes

in Canada, Montreal, Calgary and Toronto, Trizec maintained holding its largest pmperties in these

cities. Despite slower growth rates in Montreal than in Toronto and Calgary, Place Ville Marie was an

indispensable piece of property in Trizec's portfolio. To a large extent, the existence of this Ylagship'

property has established a threshold in Montreal that is not easily relinquished. Place Ville Marie and its

'satellite' projects in Montreal have produced Trizec's core portfolio that has lasted since the company's

incorporation regardless of the position of building cycles or Montreal's overall growth potential. These

one-of-a-kind projects are virtually non-tradable. In Toronto, on the other hand, Trizec did not have an

'anchor' property, hence the Company acted as an opportunistic entrepreneur, cashing in on the

expanding market. Following this rationale, when Toronto's market collapsed in the eariy 1990s, the

Company disposed of most of its properties. In the case of Calgary, off ie development was highîy

sensitive to local building cycles, but unlike in Toronto, a severe and long downtum did not prevent

Trizec from keeping rnost of its buildings during the lengthy recession. Similar to Montreal, Trizec had

reached a critical mass (defined by real estate companies as 'presence') in Calgary with some high-

profile properties; its high stakes and the prospects or recovery from the oil crisis encouraged Trizec to

keep its presence in Calgary.

Like many other real estate companies, Trizec was engaged in simultaneous operations of

development and trading of properlies. Until the early 1990s. Trizec was both a developer and trader of

office buildings, with the development elernent accounting for the majonty of its operations. ûffice

markets experienced periods of up and downs, and in these cyclical conditions, Trizec navigated by

developing buildings when markets had growth prospects and hatted development when markets

experienced recession periods. Development in the booming years in Calgary, while halting the

development of Bankers Hall and the Bay-Adelaide Centre during the downtum of building cycles are

exarnples of these practices. Downtum periods are characterized by dispositions of noncore

properties. In 1991 Trizec had 6.2 million square feet of rentable space in office buildings in Toronto.

Following the eariy 1990s downtum it disposed of it holdings in Bramalea Limited, and in 1992 it had

only 1.7 million square feet of space in Toronto (Trizec Corporation, 1991, 1 992 Annual Report). At the

same time, its office portfolio in Calgary remained intact, suggesting that Calgary's prospects at that

time were better than Toronto's, and Trizec's presence in Calgary was much more important than in

Toronto. TrizecHahn, the successor corporation to Trizec, also engaged in switching between propecty

types as in 1998, when it disposed of its entire U.S. retail portfolio and, wiUi the proceedings, bought

office buildings (see section 5.1.2)

Investments of real estate companies are not limited to real astate properties. Consequently, in

2000, TrizecHahn acquired control of a telecommunications company. This is part of its recent

philosophy of divenifying into the high-tech sector and divesting al1 of its office buildings in Canada

(Globe & Mail, March 28, 2000). Finally, in June 2000 TrizecHahn sold the majority of its Canadian

office portfolio, except for the Bay-Adelaide site in Toronto.

5.4.2 Cadillac Fairview Corporation

Cadillac Faiiview is the result of an amalgamation of a commercial developer (Fairview) and a

residential developer (Cadillac) in 1974. The Fairview Corporation was a developer of shopping centres

and office buildings, white the focus of Me Cadillac Development Corporation was on apartment

buildings. After the merger, the company disposed of its residential properties and focused on

commercial development, and became, for the most part, a developer of properties and to a fesser

extent a buyer and seller of real estate holdings.

Until the amalgamation, Faiwiew's interests in office development were in Toronto (although

the capital originated partially from Montreal-based Seagram Distilleries). In 1973, Fairview had 76

percent of its office space in Toronto (Fairview Corporation 1973 Annual Report). After the

amalgamation, Cadillac Fairview diversified into other Canadian cities: Edmonton, Halifax, Winnipeg

and Calgary, but the rnajonty of its Canadian office portfolio remained in Toronto (Table 5.5).

The Toronto-Dominion Centre, Cadillac Faiwiew's 'flagship' complex in Toronto, illustrates the

practices that have been shaped by the combination of building cycles and local conditions. The first

office building in this five-building complex was completed in 1967 (the f i h tower was completed in

1992 bringing the total office space in the complex to more than 4 million square feet). The scale of the

first tower, 1.3 million square feet, signaled a breakthrough in office development in Toronto. In 1966,

the year before the first tower was completed, the total office space in Toronto's downtown core was

only 9.2 million square feet (A.E. LePage, Office Space Market Suwey Metropolitan Toronto, 1966).

In the mid-1960s, it was a big risk to build this size of building; however, until that time,

Toronto's office market had not experienced any major slump, but had been on a continuous path of

growth. Fuither, the plan to develop this project was promoted by the City of Toronto as part of its

efforts to enhance downtown redeveloprnent. The City encouraged Faiwiew not just to develop a

building but to build a large-scale complex (Collier, 1974). In the eariy 1960s, the Toronto-Dominion

Bank was looking for a new head office, and the partnenhip with a development company having the

backing of a major corporation (Seagram Distilleries) seemed perfect. The combination of a cash-rich

real estate developer, a tenant with clout, and the support of the local govemment facilitated the

commencement of the largest office building at that time (the Toronto-Dominion Centre is jointly owned

by Cadillac Faiwiew and the Toronto-Dominion Bank).

Table 5.5 The Canadian office portfolio of Cadillac Fairview, selected years, 1968-99, percentages (1)

City 1968 (2) 1975 1982 1987 1999 Toronto 85.0 72.7 71.9 70.8 65.1

Ottawa-Hu Il O 10.8 O O 5.5

Vancouver O 9.8 13.8 14.6 10.7

Montreal 15.0 6.7 O 4.8 3.5

Edmonton O O 5.4 3.7 6.8

Calgary O O 8.9 6.1 6.4

Other O O O O 2.0

Total 100.0 100.0 100.0 100.0 100.0 Total office space 1,800 7,000 7,100 10,500 14,300 ('000 square feet) Notes: (1) Including buildings under construction. The 1 968 portfolio is of the F a i ~ e w C~rporation. Source: Cadillac Fa i~ew Corporation, Annual Reports; Fainhew Corporation, 1973 Annual Report.

The next two buildings in the Toronto-Dominion Centre were completed during the period of almost

uninterrupted growth of office space in Toronto (late 1960s and eariy 1970s). Plans for the fourth tower

were presented as early as 1973, parallel to the construction of the third tower (Globe & Mail, June 7,

1973). However, a short-term recession, the anti-development atmosphere at Toronto City Hall and the

construction of competing towers, such as First Canadian Place (2 million square feet) and the Royal

Bank Plaza (1.1 million square feet) in 1975-6, put the construction on hold. In this case, the ability of a

developer to analyze the situation and take a 'calculated risk' by initiating development at the right time

indicates the importance of the developei's judgement. A decade later, in 1983, despite an ovenupply

of office space in Toronto, Cadillac Faiwiew decided to go ahead with the fourth tower. Due to the eariy

1980s slump, construction costs were lower, and although substantial leasing was not accomplished

and long-terni financing was not ananged, Cadillac FaiMew decided to build the fourth tower (Globe 8

Mail, September 23, 1983). In fact, the completion of the fourth tower in 1985 coincided with the uptum

of the offce market and it was 95 percent leased before occupancy commenced (Cadillac Fairview

Corporation, 1985 Annual Report). The account of the fmh tower illustrates Wong' judgement by the

developer. The construction of the fifth tower commenced in 1988, at the peak of the building cycle.

Consequently, when the building was completed in 1992, leasing was stumbling as an enonnous

oversupply of office space was delivered into Toronto's office market.

Cadillac Fairview did not close its eyes to opportunities outside of Toronto. When Alberta's

economy seemed buoyant in the late 1970s, Cadillac Fairview rushed into this territory of prornising

grouvth. Until the mid-1970s, Cadillac Fairview did not have any office building in Alberta. Faiwiew

already owned an office building site in Calgary in the eariy 1970s. However, the Company's position at

that time was that it %il1 commence development of an office building ... as soon as market conditions

warrant'' (Fairview Corporation, 1973 Annual Report, p. 15). Beginning in the mid-1970s the company

was pursuing development opportunities in Calgary (Cadillac Fairview Corporation, 1976 Annual

Report), and between 1977 and 1980 Cadillac Fairview completed îwo buildings in Edmonton and two

in Calgary. In 1980. the company identified a strong demand in Calgary and decided to acquire

additional sites for development (Cadillac Fairview Corporation, 1980 Annual Report). At the peak of

Alberta's building cycle in 1981, Cadillac Fairview had approximately 14 percent of its office poitfolio in

Edmonton and Calgary combined, compared with no office space in 1976 (Cadillac Fairview

Corporation, 1976-1 981 Annual Reports). In the eady 1980s. Cadillac Fairview was planning to pursue

large-scale office development in Calgary, but the 1982 recession stopped any further development

(Guirnond and Sinclair, 1984).

In the second half of the 1980s, as Toronto's market was experiencing an explosive growth,

Cadillac Fairview refocused its development efforts to Toronto while disposing of its office b~ildings in

Calgary (Cadillac Faiwiew Corporation, 1987, 1998 Annual Reports). However, in the late 1990s. the

Calgary office market has shown signs of rebounding, and Cadillac Fairview has renewed its interest in

Calgary by acquinng two office buildings in Calgary (Calgary Herald, February 10, 1998).

Cadillac Fairview's long term focus on Toronto and its limited interest in Calgary implies that it

has a two-track strategy. On the one hand, the concentration on the Toronto market indicates that

Toronto has been a structural (long ten ) investment for the company. On the other hand, investment

in Calgary and Edmonton was considered an opportun@ resulting from unique local cycles. In Toronto,

Cadillac Fairview has reached a threshold that makes it one of the primary landlords in the Financial

District and in the surrounding Downtown area. This cluster strategy has generated operational

synergies resulting from economies of sa le and greater tenant fiexibility. Cadillac Fairview was a late

entrant to Calgary and as such it has not been able to create a 'presence' of the same magnitude as it

has in its home territory.

Besides spatial switching, Cadi!lac Fairview practiced switching between modes of operation

and between property types. Although being primarily a developer and a long-term holder of properties,

it was involved in buying and selling of buildings. Parallel to the development of office buildings in

Toronto in the late 1960s and early 1970s, Cadillac Fairview acquired two office buildings in Montreal.

On the other hand, FaiMew's first office buildings developed in Toronto in the eariy 1960s were sold in

1981 -82. The disposition of these buildings was at the time when office development was in recession.

In the early 1980s Cadillac Faiwiew also switched its property composition by disposing of its

residential portfolio (see section 5.1.2).

5.5 Capital Switching and Real Estate Companies The practices of real estate cornpanies cannot be analyzed without examining pivotal conditions related

to the real estate sector. A major structural component influencing the considerations of real estate

companies, office building cycles, and in tum the practices of these companies were addressed in this

chapter.

The conclusions of this analysis are at three levels. The fint conclusion confimis the notion

that building cycles are place-specific: different spatial scales and locations experience different office-

building cycles. Therefore the practices of real estate companies are likely to be influenced by these

cycles. By trying to capitalize on distinct building cycles, some real estate companies shift a major

portion of their investments to fast-growing areas (high profit potential), and often reduce or relinquish

their investments in other areas. However, this type of Company continues to focus on the core

investment arenas despite the fact that other areas might experience faster growth.

The limited degree of spatial integration between Canadian regions generates a variety of

building cycles at different spatial scales and places. Each of the two spatial scales investigated, the

national and provincial, has its particular cycles; within the provincial scale, variations between

provinces have a tendency to penist for the long tem. Ontario and Quebec present quite similar

patterns of office-building cycles (although the magnitude is different); British Columbia has a few

similarities with the patterns experienced by the two large eastem provinces, while Alberta exhibits a

unique pattern. This dissimilanty is partially echoed at the metropolitan level as the office building

cycles of Toronto and Calgary converged during the late 1970s and diverged during the 1980s.

Spatial and temporal unevenness are not a short-terni phenomenon eventualiy leading to a

spatial equilibnum. Examining a time series of almost four decades of o f f i building cycles in Canada

at the national, provincial and inter-metmpolitan levels suggests that uneven pattems of real estate

investment are a petmanent phenomenon embedded in urban development. The tact that temporal and

spatial switching of capital is both sequential and simuftaneous, depending upon the scale at which

one focuses and the time period of the analysis" (Beauregard, 1993, p. 59), leads to permanent spatial

disequilibrium.

Contrary to a common perception that large cities as a group attract real estate investment,

this chapter shows that within the top-tier cities in Canada some attract more real estate investrnent by

large real estate companies that other cities in this tier. Toronto and Calgary have been prime

destinations for the largest developen and owners of office buildings. Montreal and Vancouver, on the

other hand, attracted far less investrnent by the large Canadian real estate companies. Since even the

largest real estate companies cannot stretch their operations to include al1 large cities, they tend to

focus on a few preferred locations. The preference of particular cities is determined by a variety of

reasons. These include factors extemal to the Company, such as economic growth, facilitating

environment, and type of demand, and intemal factors like financial strength, local market knowledge,

and path dependency.

This embedded inequality is fuither enhanced and solidified by agents as they shape the

spatial switchinglfix of capital. Because there are multiple agents with different interests that act as

intermediaries, capital does not switch from one location to another simply by following the patterns of

building cycles. The logic of these agents is shaped and influenced by macro conditions. but the

preconditions embedded in each organization play a major role in this process. The establishment of

'local presence' (reaching a critical threshold) in specific locations prompts continuous capital funneling

to these 'designated' places. Concurrently, switching oawn between properties at a particular location

(for exarnple, between retail and office buildings or between newer and oMer properties in the same

city), and between properties that did not reach a critical threshold in a specific market, and hence are

more likely to include tradable praperties. The cases of Trizec and Cadillac Fairview illustrate this

argument. Both companies have an anchor investment in specific locations: Trizec has Place Ville

Marie in Montreal and several large buildings in Calgary; Cadillac Fairview has the Toronto-Dominion

Centre and the Eaton Centre in Toronto. This firmly established local presence and the ownership of

one-of-a-kind assets, restrict the movement of their investrnents. Even when Montreal and Calgaiy

experienced stormy periods, Trizec has continued to hold these proparties. This indicates that reaching

a certain level of investment transforms real estate into a form that is perceived as fixed by a Company

for a long period of the.

CHAPTER SIX

FROM KING AND BAY TO MEADOWVALE:

TORONTO'S OFFICE BUILDINGS AND OFFICE DISTRICTS

The urban silhouette with its soaring skyscrapen next to the CN Tower contributes to the image of

Toronto at home and abroad. But large office buildings at King and Bay are the proverbial tip of the

iceberg. There are only eight office buildings with 40 to 72 floon and only another fourteen with 30 to

39 floors. The vast rnajonty of the more than 1200 office buildings in the Toronto Census Metropolitan

Area (CMA) are relatively unassuming buildings. Although they do not receive much attention, they are

extremely important. They provide accommodation for tens of thousands of businesses and hundreds

of thousands of employees. All office buildings together accounted for about 36 percent of employment

in Metropoiitan Toronto in 1996 (Metropofitan Toronto Planning Department, unpublished tables) and

for about 25 percent of employment in the CMA. The smaller office buildings are treasured by and

fought over by municipalities that value their contribution to the municipal tax base. The spread of office

buildings acrcss municipal boundaries and the different forces and denslies of these various buildings

have been more and more contentious among planners and municipal politicians.

In this chapter I describe the characteristics and locations of Toronto's office buildings. The

core of this account is data avaibble on individual buildings provided for this study by Royal LePage, a

Toronto-based real estate bmkerage finn. The chapter includes a section on 'preliminaries', which

deals with the definition of office buildings, the scope of the data, and the basic spatial units chosen for

aggregating individual buildings. The two major sections of this chapter focus on documenting the

changing inventory of office space in Toronto and provide evidence for the notion of office districts.

Toronto's office stock has accrued over several phases, each with different conditions for development

and different physical resuits in the fom of buildings. Although office buildings are scattered across

many locations, there are distinct nodes or districts noticeable. The description of these office districts

is important, because they are the fields of operation for different kinds of developers. The final section

illustrates spatial switching of capital within the realm of the largest office parks in the Toronto CMA.

6.1 Preliminaries: Office Building lnventory and the Spatial Frame

of Reference There is no explicit definaon of what constitutes an office building. The undedying notion, used by real

estate businesses as well as urban planners, is of a building, which does not house rnachinery other

than that sitting on desks. This machinery is used for the manipulation of words and data. This

excludes buildings used for storing goods or for conventional residential purposes. Universities,

churches and places where people stay overnight (hotels) are also excluded from the definition of office

buildings. However, a theoretically-based definition of office buildings is missing. Typically, in most

databases dealing with office buildings the definition of an office building is considered self-evident and

any explanation considered redundant. Largely for practical reasons, the customs of the agencies

providing data are accepted here.

Data on office buildinas

There are no official data on office buildings. Leitner (1994) acknowledges this problem in her research

on office building cycies in major downtown areas in the United States. As a resut, she used data

maintained by commercial real estate broken. Municipalities within the Toronto CMA do not have any

systematic data on office buildings which would provide a good picture of the office stock.

Municipalities rarely define office space or collect data on office buildings. In planning documents,

office space is usually embedded in the larger category of commercial or mixed uses. Also,

municipalities rely on private consultants, who in tum rely on data from real estate brokers. Since there

is no official enumeration or suivey of office buildings in the Toronto metropolitan region, data collected

by real estate brokerage firms, especially Royal LePage, and Colliers are used here. Royal LePage

defines office buildings as "office space in buildings having as their prime funclion the provision of

office facilitiesn (Royal LePage, 1982). No additional explanation is provided regarding the criteria used

to determine what office space is. Nevertheless, Royal LePage is the only source that has compiled

and rnaintained an outstanding set of data on the office building history of Toronto since the eady

1960s.

In order for a building to be included in the Royal LePage inventory, it has to have at least

20,000 square feet of net rentable office area, which is the floor-space that can be rented to and used

by tenants. Over the years, surveys became more detailed in ternis of information provided, and Royal

LePage changed the number and the boundaries of the districts for which it published data to reflect

temporal shifts in office development. In 1977, it added the City of Mississauga to the surveys, and in

subsequent years the boundaries of the suweyed area were further stretched out to include the

expanding metropoiiian area.

Data from commercial real estate agents have to be handled with care. Royal LePage data has

certain characteristics Al1 office buildings with more than 20,000 square feet were recorded. A typical

20,000 square feet building is a four-storey building of about 50x100 feet floorplates. Office space

above stores or in shopping plazas is not included. Royal LePage surveys categorize buildings by

market classifications designated as A, B, and C. These distinctions roughly parallel quality and p r ia

levels for office space which directly competes for the same tenants in the sarne district. The Royal

LePage survey includes both 'cornpetitive' and 'noncompetitive' buildings. Cornpetitive space is

cornprked of multi-tenant buildings with office space offered for lease in the short term. Non-

cornpetitive buildings are occupied by building ownen or by long-terni core tenants; these buildings

include govemment office buildings. Most other real estate brokers do not include noncompetitive

buildings since they are not considered a part of the leasing market they are interested in. Floor-space

data in Royal LePage surveys is about net rentable floor-space; this excludes walls. elevator cores,

and areas that are not included in the rent. This is different from municipal practices, which are used for

density (floor space index) calculations. Density calculations use gros floor-space, thus, there can be

differences between space recorded in municipal documents and Royal LePage tabulations.

Royal LePage data is far from complete or consistent. Often it is difficult to detenine the exact

function of the spaces recorded. Built space can function both as office and industrial space, and

drawing the line is difficuk. This problern of definition becornes more acute in the newer types of

buildings that are by definition 'hybrid' or 'flex' buildings combining several functions, or in which

functions change over tirne; therefore, making clearcut definitions is often inadequate. In addition,

'questionable' buildings are often included in Royal LePage data as office buildings, such as the

Ontario parfiament buildings, which are to a large extent an assembly space rather than office space.

On the other hand, buildings converted from wholesale and manufacturing to office use are often not

included in the Royal LePage surveys.

Spatial units of analvsis: Office districts

The availability of data on individual office buildings for 1971, 1981, 1991, and 1999 facilitates the

construction of spatial units (Table 6.1). Figure 6.1 provides the essential reference map. For the

analysis of this chapter I divided the inner city into the Financial District, Downtown (excluding the

Financial District), and Midtown (which includes office clusters around major subway stations at Yonge

and Bloor, Yonge and St. Clair, and Yonge and Eglinton).

Table 6.1 A typology of office districts in the Toronto CMA

District Type of district Office flooispece, 1999 (square feet)

Financial District lnner City 32,000

Downtown lnner Ciîy 27,300

Midtown lnner City 18,000

North York City Centre Suburban Downtom 6,700

Scahrough Town Centre Suburban Downtown 3,600

Mississauga City Centre Suburban Downtown 3,500

Airport ûf f i i Park 8,000

WoodbinelSteeles OKce Park 5,700

Woodbinekiighway 7 Office Park 5,550

Consumers Road Office Park 4,800

Don MiIls Office Park 4,700

Meadowvale O f f i Park 2,800

Highway 427 ûffiie Park 2,600

Hurontano Office Park 2,550

Duncan Mill ûffice Park 2,400

Dispersed Lacations 18,400

Total office spacc in Toronto 148,600

Source: Royal LePage (2000) Toronto Offce Space Market, Statistical Summary Year-End 1999.

The Financial District has more than half of the downtown office space, and, therefore, a distinction

between the Financial District and the surrounding downtown area had been fonned. lnstead of using

the definitions of Metro Noith, East, and West as provided by Royal LePage, I divided suburban

districts into two types, Centres and Office Parks. Each of these districts was compared with the

definitions delineated of the 1976 Toronto's Central Area Plan, the Metropolitan Toronto Official Plans,

and the City of Mississauga Official Plan. These districts have distinct physicaf characteristics.

Dispersed locations are clusten of office buildings in which the total office floor-space is less than 2

million square feet or areas in which office buildings that do not fonn clusten.

6.2 Toronto's Office Stock: A Synopsis The Toronto metropolitan area experienced rapid growth in office space between the 1950s and the

early 1990s (Table 6.2). Toronto's office inventory more than Mpled during the decade-and-a-half

between the mid-1950s and the eaily 1970s, but 'only' doubled in each of the two decades between

1971 and 1991. In this twenty-year period from 1971 to 1991 Toronto's offÏce stock expanded by

almost 1 10 million square feet of new o f f i space. Net additions to the office stock made in the 1990s

were very modest.

Table 6.2 The growth in office space inventory in the Toronto CMA, selected yean, 1954-99

Year Number of buildings Floor-space ('000 square feet)

Office stock Net additions

1954 NIA 10,000 -

1999 1,229 148,600 6,700

Source: Royal LePage (formeriy AE. LePage) Toronto Office Leasing Directory, various years.

In the early 1950s, alrnost al1 office floor-space in Metropolitan Toronto was in the City of Toronto, and

by 1961, the share of the City of Toronto had dropped only slightly to 93 percent of total office space

(Gad, 1985), with the most significant concentration in the 'old office district (the future Financial

District). By 1991, the City of Toronto had only 52 percent of the CMA inventory; the remaining was in

municipalities both within and outside Metropolitan Toronto. Office suburbanization to designated

centres and selected office parks resuited in a multi-nodal pattern of office districts. This process of

office dispersal started in the inner suburbs (North York, Scarborough and Etobicoke), and continued in

municipalities outside Metropolitan Toronto, mainly Markham in the nodh and Mississauga in the west

(Figure 6.1). These numbers show that at the intra-metropolitan level there were districts that

experienced faster growth than others, and hence their share of the metropolitan stock increased. In

the following section, a spatial-temporal picture of office buildings clustered in the different office

districts of the Toronto CMA will be shown by using three characteristics of office buildings: additions of

office floor-space, average building site, and the building density (Floor Space Index, FSI).

New office space

In the time period under scrutiny (1954-99), 1135 office buildings of at least 20,000 square feet each

were built in the Toronto CMA. The information is based on Royal LePage surveys of individual o f f i

buildings in the Toronto Census Metropolitan Area at four points in time: 1971, 1981, 1991 and 1999.

These sunreys include the year in which each building was built and the total office space of each

building. This enabled the constnicüon of data that would correspond to office building cycles. Rather

than strictly limiting data to a tan-year frame, longer or shorter periods were employed according to the

hythms of net additions of office space. Table 6.3 summarizes these findings.

Table 6.3 Additions of new offie space in the Toronto CMA, selected years, 1954-99 ('000 square feet)

District 1954-70 197141 1982-92 1993-99 Total additions

Financial District 7,500 10,000 11,000 100 28,600

Downtown (1) 4,050 6,200 1 0,800 1,550 22,600

Mid t o m 6,800 6,850 4,100 100 17,850

Office Park 3,700 10,400 22,900 3,000 40,000

Suburban Downtowns NIA 3,850 9,400 500 13,750

Dispsrsed Locations 1,600 6,000 &O00 450 16,050

Total 23,650 43,300 86,200 5,700 138,850 - - -

Notes: Since this table is based on individual building data, there are several discrepancies between tfiis data and the annual publications of Royal LePage. (1) Downtown excludes the Financial District. NIA - between 1954 and 1970 a negligible amount of office space was buiit in suburban downtowns. Sources: A.€. LePage (1971) Toronto, Office Space Sunrey; AE. LePage (1980) Toronto, Office Space Sunrey; Royal LePage (1 991) Toronto, Market Survey Report: Royal LePage (2000) Toronto Office Space Market, Statistical Summary, Year-End 1990.

During these four and a half decades, the spatial patterns of office development have changed

drarnaticalfy. The earlier pattern of downtown and midtown orientation was transfomed to an almost

even distribution of office space between the core and the suburban realm. Most of the City's office

space was and still is contained within the Central Area (as defined by the 1976 Official Plan), which

includes the Financial District, Downtown and Midtown. In 1971, 82 percent of Toronto's office space

was within the City; in 1981 it decreased to 66 percent, and in 1991 only 52 percent of Toronto's CMA

office floor-space was within the City boundanes. This situation has remained unchanged in 1999

(Royal Le Page, various suweys).

During the 1980s cycle (exîended from 1 982 to 1992. buildings completed in 1991-92 were a

product of the late 1980s development cycle) more office space was added to the Toronto area than in

any previous decade. In the 1 9 8 0 ~ ~ more than 66 million square feet were added, representing 50

percent of al1 postwar additions (Table 6.3). In the 1970s (1971-81), 32 percent of the postwar office-

building additions were made, 14 percent in the 1954-70 period, and during 1993-99, only 4 percent of

the postwar stock was added. If conversion to other uses and demolition are taken into account, the net

addition is less than 4 percent during the 1993-99 period.

In the 1954-7û period virtually al1 addlions of office buildings were in the City of Toronto; the

Financial District was the prime beneficiary of office development (41 percent of the new space). The

1970s were the defining decade in which the dominance staited to shift from the Financial District to

the office parks, and by the 1980s construction outside Toronto's Central Area exceeded that within the

Central Area. In the 1970s, the share of the Financial District and office parks in offce development

was equal; in the 1980s. 34 percent of the additions were in office parks while only 17 percent were in

the Financial District. In the 1990s (1993-99) more than one-half of the additions in Toronto were in

office parks. (Their share rises as the 1990s proceed, and by the late 1990s virtually al1 construction of

office space was in office parks.) This shift paralleled population growth patterns; suburban

rnunicipalities, initially those within Metro Toronto and later municipalities outside Metro experienced far

greater growth rates than the City of Toronto. However, this shift to office parks abo contradicts

planning policies of Metmpolitan Toronto, which attempt to channel office development into suburban

downtowns rather than to office parks.

Buildinci size

Despite the massive office development in Toronto during the 1980s, the largest office buildings, on

average, constructed in Toronto in the postwar era were built in the 1970s (Table 6.4). Until the late

1960s, only the City of Toronto (the combination of the Financial District, Downtown and Midtown) had

a substantial office inventory; within these boundaries the largest office district was the Financial

District, and on average it had the hrgest office buildings. In the 1970s (1971-81). the average size of

office buildings constructed increased considerably; it more than doubled in the Financial District, and

doubled in the Downtown. The largest office buildings by far are found in the Financial District. The

average building constructed in the Financial District in the 1970s had more than 500.000 square feet

of office space, while the average in the Downtown district, the district with the second largest office

buildings, was only 200,000 square feet. With the expansion of the suburban realm in the 1980s, the

average building constructed in the suburban downtowns has surpassed the average office building

size in the Downtown district (223,000 venus 192.000 square feet).

Table 6.4 Average size of newly constructed office buildings in the Toronto CMA, 1954-99 ('000 square feet)

District 1954-70 197141 1 982-92 1993-99 Average financial District 227 502 422 WA 357

Downtown (1) 101 200 1 92 N A 169

Midtown 89 140 111 NIA 1 09

Suburban Downtowns NIA 1 67 223 NIA 205

Office Parks 71 92 89 99 89

Dispersed Locations 44 77 69 NIA 68

Average 90 1 38 1 24 129 1 22

Notes: (1 ) Downtown excludes the Fmancial District N A - between 1954 and 1970 a negligible amount of space was buiit in suburban downtowns; in 1993-99 oniy 14 office buildings were buiiî in the CMA (except office paris), îherefore the average size for each district was not calculated. Source: Same as Table 6.3.

Buildings in office parks and in dispersed locations retain the smallest office buildings (smaller than

100,000 square feet), and their average sue has remained almost unchanged throughout the 1971 -99

period. During the 1980s (1982-92), the average building size had dropped in al1 districts except in the

suburban downtowns (an increase of 30 percent). The decline in average size was most noticeable in

the Financial District and in Midtown; in these two districts it dropped by more than 15 percent.

Densitv

Density is analped b ÿ using a sample of 300 office buildings completed between 1951 and 1 991 in

Metropolitan Toronto (Metropolitan Toronto, 1993). In the City of Toronto buildings with over 100,000

square feet of office space in which office space constitutes more than 50 percent of the total floor-

space were included. Buildings with more than 50,000 square feet were utilized in the case of the

suburban municipalities within Metropolitan Toronto.

As expected, the highest densities are recorded in the Financial District, followed by the

densities in the Downtown and Midtown districts. Outside the old City of Toronto densities were

significantly lower (Table 6.5). The average density in the Financial District was 13.6 times the lot; high

densities were recorded also in the Downtown and in Midtown (9.3 and 7.5 respectively). Densities in

suburban downtowns lagged the City of Toronto denslies with an FSI of 2.5. Office parks and

dispersed locations fell behind suburban downtowns as the typical density was about one times the lot.

Table 6.5 Average densities of office buildings in Metropolitan Toronto, 1991

District Density Financial District 13.6

Downtown 9.3

Midtown 7.5

Suburban Downtowns 2.5

Office Park 1.1

Dispersed Locations 1.1

Source: Metropolitan Toronto (1 993), 1991 Office Data Bank

The density or Floor Space Index (FSI) is a very complex indicator which may be deceptive. In general,

density is calculated by dividing the gross floor area (above and below grade) of a structure by the size

of the site on which the building is erected. However, complex methods of density calculations can

result in a variety of densities, particuhdy in the case of large-scale projects. lnstead of taking into

account the actual site on which the building is constructed, a larger parcel may be considered for the

purpose of density calculations. Two examples illustrate this case. The Simpson's Tower located on the

southeast corner of Queen and Bay (in the Financial District) was completed in 1969. Its total gros

floor area is 653,000 square feet and the site area is 22,600 square feet, hence the density is 28.9

tirnes the lot. Two reasons rnay explain this extremely high density. First, one argument might suggest

that the entire city block bounded by Queen, Yonge, Richmond and Bay should be considered as the

developrnent site, since the retail component on this site did not use the full density allowed. The other

explanation suggests that in the 1960s the City of Toronto was not as strict in limiting densities as the

'reform' council in the mid-1970s. A similar approach was adopted by the City of Toronto in the late

1980s as it declared that the Bay-Adelaide Centre is pait of a 'super-bbck' (par! of the 'super-block'

includes the site of the Simpson's Tower), hence allowing the developers to gain extra 700,000 square

feet (Toronto Star, November 5, 1988).

The second example is the Scotia Plaza building, which was completed in 1989. The approval of this

project was made public, especially after a rival bank, the Toronto-Dominion objected to the 'excessive'

density of the Scotia Plaza project (see Chapter Seven). According to the highiy publicized debate, the

densrty of the Scotia Plaza was 16 times the lot. However, the adual FSI is much higher. The total floor

area is 2,300,000 square feet and the lot sue is 97,000 square feet, therefore the density is 23.7 times

the lot coverage. Again, dsnsity depends of site definitions.

6.3 Office districts in Toronto Office buildings in the Toronto Metropolitan Area are not evenly dispersed but strongly clustered in

srnall areas, largely delineated through planning instruments such as 'Official Plans' and zoning

bylaws. These territories are identified here as office districts on the basis of principal location,

characteristics of buildings, and planning history. The ofiice districts are presented in Table 6.1. Before

the districts are descnbed in detail, a systematic comparison of selected districts based on building

characteristics is provided in order to illustrate the systematic variety of the offke buildings fabric (Table

6.6).

The spatial configuration of office clusten and their intemal characteristics illustrate a diverse

office inventory in terrns of the size, height, and the age of office buildings. Examination of f i e

exemplary districts reveals core-periphery gradients based on these building characteristics (Table

6.6). The further away a district is from the core, the smaller, lower and newer are the buildings. The

composition of the office building stock in the Financial District, which is also the oldest office district,

points out that it has by far the largest office buildings in ternis of floor-space (more than 300,000

square feet), in terms of height (more than 25 stories) and also the largest share of 'older' buildings.

The Midtown district has fewer large-scale buildings, few high-rise buildings, and a

considerable number of 'old' office structures (built before 1970). Office buildings in the largest

suburban downtown, Downtown NoRh York, are newer and larger than buildings in the Midtown

Toronto. However, buildings over 25 stories are absent from Downtown North York. The dominant

features in the Consumers Road district, one of the oldest office parks, are low-rise buildings (73

percent with fewer than 1 1 stories), almost no buildings of more than 300,000 square feet, and very few

buildings that were built before 1970. The features of office parks are magnified in the newest office

park in the Toronto CMA, the WoodbineMighway 7 district. All office buildings in this office park are

Iess than 300,000 square feet in site, fewer than 1 1-stories high, and there are no buildings that were

built before 1970 (the first buildings were built in the mid-1980s).

Table 6.6 Physical characteristics of office buildings in selected districts in the Toronto CMA, 1999

Building characteristics

No. of buildings

Buildings with less than 100,000 square feet

Buildings with more than 200,000 square feet

Buildings of less îhan 1 1- stories

Buildings of more than 25- stories

Buildings completed before 1970 Source: Royal LePage (1999

Financial District

No. % 105 100

33 31

32 30

23 22

25 24

57 54

Unpublished da

Midtown

No. % 150 100

98 65

16 11

106 71

3 2

67 45

on individual 01

Downtown North York No. % 29 100

8 28

11 38

12 41

O O

2 7

ce buildings in ti

Consumers Road

No. % 33 100

6 18

Toronto CMA.

Wwdbind Highway 7

No. % 69 100

Office building characteristics Vary strongly from district to district as has been shown. There are other

differences. The interna1 street and circulation systern in the Financial District includes fragmented

parcels that had to be assembled for the development of large office buildings. The Consumers Road

or the WoodbineRlighway 7 districts comprise of large parcels of land separated by roads and

expressways. lnner city districts, including Downtown North York, have mixed land uses, which include

mainly residential, retail, institutional and offce uses; office parks are clusters of office and industrial

buildings. Each district has different kinds of boundaries. Expressways and arterial roads enclose some

districts (office parks), whereas other are bounded by residential neighborhoods and institutional

complexes (Midtown, Downtown North York). Also each district has a particular location in the

network's of the public transit and road infrastructure. The Financial District is transit oriented, Midtown

is partially transit oriented (located along the Yonge subway line). Office parks are totally automobile

oriented and their designation as office parks or their emergence as office parks is attributed to being

highly accessible by automobile. Description and understanding of these districts is important, because

office districts are the resuit of rounds of earlier development and they provide the conditions for new

rounds of office development, stagnation or abandonment.

6.3.1 The Financial District

The territory currently designated in Official Plans as the Financial District is the prime office area of the

Toronto region in t a n s of scale, quality of office space, and rental rates. In this district, the fint

purpose-buiit office structures in Toronto were buiit in the late 1850s in the area east of Yonge Street

around the jundure of Adelaide and Toronto Streets (Gad and Holdsworth, 1984). Until the 1960% this

area was the general office district in the City of Toronto. Although banks, trust and insurance

companies became the r o s t prominent establishments in this district, other types of office

establishments were also part of the general office district (Gad and Holdsworth, 1984; Gad, 1999).

The commencement of the Toronto-Dominion Centre in the mid-1960s ushered in a new phase

of office development in the general office district. A pro-growüi urban regime, using permissive

planning regulation, encouraged large-sale urban redevelopment in the City of Toronto. City officiais

welcomed the participation of corporations in redeveloping the downtown area. In the case of the

Toronto-Dominion Centre, the director of the City of Toronto Planning Board urged the president of the

Toronto-Dominion Bank to consider a downtown cornplex instead of just a head office building (Collier,

1974). In the 1970s some of the largest office buildings in the Financial District were built (Commerce

Court, First Canadian Place and Royal Bank Plata).

In the 1976 Central Area Plan the area was officially designated as the 'Financial District'.

Following the Central Area Plan, development restrictions were imposed, and densities in the Financial

District were lowered from an FSI of 12 to an FSI of 8 (Caulfield, 1974; Gad, 1999). However, by that

tirne, many of the largest office complexes were already built, under construction, or approved. The

oversu pply of office space in the mid-1970s cou pled with municipal 'resistance' to office development

had resulted in a relatively modest delivery of new space in the late 1970s and early 1980s.

Notwithstanding this, downzoning did not prevent the construction of large-scale developments, and by

the mid-1980s when the real estate market was 'hot', two of the largest office complexes in the current

Financial District were built. They had much higher densities than allowed in the 1976 Official Plan and

zoning bylaw. The Scotia PIaza (FSI of 16) and the BCE Place (FSI of 12) were approved in the mid-

1980s (Toronto Star, June 29, 1984; Globe & Mail, December 15, 1987). The average density of the

medium and large office buildings completed before the 1976 Official Plan and after the plan are about

the same average with an FSI of 13.5. Much of the post-1976 plan densities are due to pemitted and

bargained bonuses granted to office projects as a iesult of historical preservation and the provision of

public benefiis such as assisted public housing and daycare facilities.

In the 1990s, the Financial District was considered Canada's most densely developed urban

area (Gad, 1991 b). This district has the largest office buildings in Toronto in tenns of floor-space and

height and office buildings are the major land use in the Financial District. In a thiiiy-year period (1 961 - 9 1 ) office space in the Financial District had increased fiiefold, while its proportion in the metropolitan

office stock declined from 35 to 22 percent (Table 6.7). In addition, intemal dynamics have changed the

composition of the district's buildings.

Table 6.7 The lnventory Office Space in Toronto's Financial District, selected yean, 1961 -99

1961 1971 1981 1991 1999 Office space inventory 6,200 12,400 21,000 31,300 32,000 ('000 siuare feet) -

% Toronto's CMA inventory

No. of buildings added 33 20 26 1

No. of buildings added with less than 300,000 square feet

Note: Based on the financial D i boundaries of the Central Area Plan (1 976). Source: Same as Tabfe 6.3.

Repeated conflicts anse because there are still, and always will be 'historic' buildings that are

threatened by intenslication through redevebpment. Also, intensification has implications in tenns of

increasing demand for the provision of public transit, and because of the over-spill effects of automobile

traffic touching a wide range of inner-city areas. Thus, office development in the Financial District casts

a huge shadow of extemalities over the city. Together with the large towen associated with large

finance as symbols of domination, these extemalities give rise to repeated episodes of resistance by

fractions of the inner-city population.

However, the Financial District is not comprised of just large office complexes; srnall and

medium office buildings are cornmonplace. Out of 80 office buiidings added in the Financial District in

1954-99 period, 49 buildings had less than 300.000 square feet each (Table 6.7). and until the eariy

1970s these buildings were the dominant feature in the landscape of the Financial District. Only in the

1970s and 1980s with the construction of many large-sale projects, small and medium office buildings

have become less signifkant, and their share of the districYs office space has plunged from 66 percent

in 1971 to 30 percent in 1991.

6.3.2 Downtown and Midtown

Downtown is used here to describe an area that includes second largest concentration of office floor-

space in the CMA. The Downtown district encircles the Financial District, with the largest part located

north of the Financial District. This district includes retail, institutional and residential uses as well as

office buildings. Royal Le Page d ides Downtown into f i e concentrations: North, South, East. West

and King West. The eastem sector of Downtown as well as King West includes some of the oldest

office stock, and is also the smallest in ternis of office space. The areas of Downtown North and

Downtown West have the largest office inventories in Downtown.

In the Downtown area, office development expanded substantially from the 1950s to the

1980s. As land for redevelopment in the Financial District became scarce and municipal regulation

tighter, office development moved to the areas sunounding the Financial District. In the 1970s and the

1980, the area north of the Financial District and south of Bloor Street (Downtown North according to

Royal LePage definitions) experienced massive growth, and in the 1980s the area immediately west

and south of the Financial District added considerable volume of office space.

Midtown is a combination of three distinct clusters, Bloor Street, St. Clair Avenue, and Eglinton

Avenue at the intersections of Yonge Street. These areas are located around major subway stations

along the Yonge subway line, and their genesis as office districts is a consequence of the opening of

the Yonge line in the mid-1950s. Prior to the opening of the Yonge subway line in 1954, no significant

office clusters were to be found in the Midtown District. The subway and municipal encouragement

through zoning induced office construction around the major subway stations in the Midtown area

(Lemon, 1985). Throughout the decade following the opening of the Yooge subway line (1 954-65), 45

percent of new office construction in Metropolitan Toronto was in the Midtown district.

Midtown Toronto continued to experience considerable growth from the mid-1960s to the mid-

1970s. In the 1969 ûfficial Plan, two of the three clusten in the Midtown area were designated to

function as 'commercial districts', thus removing them from the liberal growth framework prevailing in

the Central Area. Since the mid-1970s, office development in these areas has slowed down as a result

of neighborhood pmtest, followed by restrictions on parking space permitted in and around new office

buildings. As a result, Midtown was the only district in the Toronto CMA that gained l e s office space in

the 1981 -91 decade than in each of the preceding decades (Table 6.3).

Both Downtown and Midtown districts are areas with offices, institutional, and older residential

uses that have been subject to gentrification. Consequently, any office development that is associated

with disturbing the existing building fabric and its reuse has been problematic and very few large o f f i

buildings wewe added in these districts after the mid-1970s.

6.3.3 Suburban Downtowns

By the end of the 1990s. there were three distinct office districts which deserve the label 'suburban

downtown'. These suburban downtowns are in the former Metropolitan municipalities of North York and

Scarborough, and a third one is in the City of Mississauga. These downtowns or subcentres were

created through both public planning measures and the initiatives of private developen. They are

defined and delineated in Official Plans and roning bylaws, and they are promoted by local

municipalities, and in the case of Nom York and Scarborough also by Metropolitaii Toro~to. In these

subcentres, office buildings are confined to reasonably small areas (at least at suburban sales of

cornpactness), and in the 1990s each of these centres accommodated more than 3 million square feet

of office space.

The development of suburban downtowns in the Toronto area is a relatively new phenomenon

(Hartshom and Muller, 1989; Relph, 1991). Until the early 1970s, no such downtowns existed.

However, since the mid-1970s, and especially in the 1980s, the suburban municipalities surrounding

the City of Toronto expanded rapidly, and their downtowns grew conespondingly (Table 6.8). This

transformation resulted from several factors, most notably suburban population and employment

growth, centrifuga1 forces pushing office development away from the City of Toronto. the

deconcentration of office employrnent encouraged by the Metropolitan Toronto govemment, and the

desire of suburbsn municipalities to attract developrnent in order to expand their tax base and in order

to gain visibility and recognition. The importance of suburban downtowns for their respective local

governments is reflected in the off icial designation: Mississauga City Centre, Downtown North York and

later North York City Centre, and Scarbomugh Town Centre.

The 1980s were the 'golden decade' of office development in the suburban downtowns. In

1976, total office floor-space in the three downtowns was 1.35 million square feet; it increased to 4

million in 1981, and more than tripled by 1991 to 12.7 million square feet (Table 6.8). Conespondingly,

their share of Toronto's office stock increased from 2.5 percent in 1976 to 9 percent in 1991. In the

1990s, growth in suburban downtowns literally came to a hait. There were no new office buildings

completed. (Although several office buildings were completed in the early 1990s in North York City

Centre and Mississauga City Centre, they were part of the 1980s boom).

Table 6.8 The inventory of office space in tha Suburban Downtowns, selected years 1976-99 ('000 square feet)

Suburban Downtown 1 976 1981 1991 1999 North York Crty Centre (NY) 650 2,300 5,600 6,700

Scarborough Town Centre (SC) 450 850 3,600 3,600

Mississauga City Centre (MS) 250 900 3,500 3,500

NY+SC+MS as % of CMA 2.5 5.5 9.0 9.3

No. of office buildings with 1 2 12 15 more than 300,000 square feet Note: The discrepancv between th& table and table 6.3 is a resuft of a fine-tuned delineation of ttie suburban downtowns. Source: Same as s able 6.3.

Aithough al1 were created in the 1970s and expanded in the 1 9 8 0 ~ ~ some major differences prevail. In

the suburban municipalities the role of private developea is more pronounced than in the City of

Toronto. In Scarborough, the T. Eaton department store Company initiated the Town Centre in the late

1960s. Eaton owned the land and together with Trizec, built a shopping centre as an anchor of this

csntre. Eaton even donated some land to the municipality of Scarborough for the construction of new

municipal offices; the availability of land was one of the major considerations for choosing the site as

the future t o m centre (Globe & Mail, Mach, 9, 1973; December 12,1975; September 24, 1981).

A very sirnilar chain of events happened in Mississauga. A local real estate developer, S.B.

McLaughlin, bought land that he thought might become the city centre. In 1970 he built a shopping

centre and the first office building in the future crty centre. He persuaded the municipal council to move

into this centre (see Chapter Seven). In North York the idea of 'creating' a downtown was bom in the

1970s. North York's population growth, the extension of the Yonge Street subway Ine northward to

Finch Avenue and the encouragement by Metropolitan Toronto to deconcentrate office growth to

suburban centres, al1 contributed to the adoption of the 'downtown plan' by the municipality of North

York in 1 979 (Matthew, 1989).

The group of suburban downtowns is not as homogenous as it seems. Among the downtowns,

North York City Centre is the most 'urban' as a resuit of being on the Yonge subway line and in an area

with relatively dense pre-existing urban development. The Nomi York municipality encouraged the

reliance on transit by restricting the ratio of permitted parking space in office buildings. Also, the

developrnent of this subcentre encountered a fierce resistance arnong residents in the neighborhoods

adjacent to the City Centre. The subcentres in Scarborough and Mississauga were developed on

greenfield sites, thus local conflicîs were hardly a major issue.

In addition, the size. height and densw of office buildings Vary between these subcentres.

North York City Centre has the largest office buildings (10 buildings with over 300,000 square feet

each, Scarborough has f ie, and Mississauga has only one). The North York City Centre stands out

with seven buildings of 20-24 floon. In the Mississauga City Centre and the Scarborough Town Centre,

the maximum building height is 18 floon.

6.3.4 Office Parks

The nine recognizable office parks in the Toronto CMA contained more than 2 million square feet of

office space in 1999. The major attractions of office parks are related to space and accessibility

(Daniels, 1974). The availability and relatively low cost of greenfield sites enables on-site parking and

customized-design buildings. In the Toronto area, office parks are a feature of the post-WWII era. and

therefore strict regulations and preferences regarding land use separation are applied. The office parks

exclude any residential uses (apart from hotels) and usually have veiy distinct boundaries such as

expressways, railway tracks, or ravines. which act as barrien between various types of offices and

residential neighborhoods. Hence, conflicts with residents as interest groups are viltually unknown.

Most Toronto office parks were developed in areas initially designated as industrial areas

(Pivo, 1993). Two major comdors of office park development dominate the Toronto area: the Don

Valley comdor and the Highway 401 comdor in the vicinity of the Airport (Figure 6.1). In the case of the

Don Valley corridor, the north-south Don Valley Parkway (DVP) and its extension northward (Highway

404), and the major east-west comdor, Highway 401. have provided high accessibility to Toronto's

central area and to the metropolitan region as a whole. In the airport area, Toronto's International

Airport and sunounding web of highways (401. 403. 427, and recently 407) have enhanced the

attractiveness of the Airport district for office development.

The Don Valley Parkway is the backbone of the strongest concentration of office parks in

Toronto. Beginning in the mid-1960s. the development of the Eglinton-Don Mills area (Flemingdon

Park) created Canada's first suburban office park that ran along the proposed north-south expressway.

ln the late 1960s. after the completion of the Don Valley Parkway another mixed-use park further north

of Flemingdon Park was developed (Matthew, 1989). The Consumes Road district, situated around

the intersection of Highway 401 and the DVP, signaled the future trend of office development. In the

1980s and 1990s, office clusten at Woodbine and Steeles and Woodbine and Highway 7 were

developed. By the early 1990s, these nodes became the largest office parks in the Don Valley comdor

(Table 6.9). The leapfrog extension northward along the Don Valley axis has created the most distinct

concentration of office parks in the Toronto area, ovenhadowing other office clusten by the earîy

Table 6.9 The inventory of office space in Office Parks in the Toronto CMA, selected yean, 1971-99 ('000 square feet)

Concentration ûffice Park 1971 1981 1991 1999 Average building size

Don Valley Parkway Don Mills 2,600 3,650 5,100 4,700 1 OS

Duncan Mill 500 1 250 2,350 2,400 8 1

Consumers Road 1,000 2,850 4,100 4,800 118

WoodbineISteeles O 1,300 5,900 5,700 130

Woodbine/Highway 7 O O 5,000 5,550 74

Airport Highway 427 300 1,250 2,500 2,600 73

Airport 150 700 5,800 8,000 75

Hurontario

Meadowvale

Total 4.700 12250 35.250 39.1ûû 89 - -,-- - . - -

% of Toronto 13.2 168 24.8 26.3 Source: Same as Table 6.3.

In the west, the Airport area includes four distinct office districts: Highway 427, the area surrounding

the Airport, Heartland Business Park (Highway 403 and Hurontario), and Meadowvale, west of the

airport on Highway 401. The raison d'être for office development is the Airport and the surrounding

major highways. In the eariy 1970s, only a few office buildings existed in this area. Dunng the 1980s.

the area had undergone intensive development, and by the mid-1990s. the Aiport office district was

the single largest 'office park' in the Toronto region with 8 million square feet of office space (Royal

LePage, Toronto Office Space Market, Statistical Summary, Year-End 1999).

In the second half of the 1990s. office parks were almost the only areas of office development

in the Toronto metropolitan region. In 1998-99 almost 2.5 million square feet were completed in the

Toronto CMA, and in 1999 almost 4 million square feet were under construction. The vast majonty of

the construction has been in the office parks situated outside Metropolitan Toronto. These include

office parks in Markham (the Don Valley ParkwayNighway 7 concentration), and in Mississauga,

primarily in the Airport, Heaitland, and Meadowvale districts (Royal LePage, Toronto Office Space

Market, Statistical Summary, Year-End 1999).

Tbere are some variations in the character of office parks. For instance, the average building

size in most office paiks is between 70,000 and 85,000 square feet; however, in the Consumen Road

and Woodbine/Steeles districts, the average building has between 120.000 and 130,000 square feet of

office space (Tab!e 6.9). Office parks, although having on average the smallest building size among

office districts in Toronto, contain also some large-scale o f f i buildings. Although the presence of

large-scale buildings in office parks is not new, there has been a trend toward larger office buildings in

the last decade. In the late 1960s, three buildings, each over 300,000 square feet (the IBM building. the

23-storey Foresten House and the Bell Canada Data Centre), were buiit in the Don Mills district. In the

late 1980s, two buildings of more than 300,000 square feet were developed in the Consumen Road

office park, each 17-storeys high. In the WoodbineISteeles office park, three low-rise buildings (two

buildings in an IBM cornplex of 900,000 and 700,000 square feet, and the Bank of Montreal Data

Centre 400,000 square feet) were added between the mid-1980s and the early 1990s. Beginning in the

late 1990s, major office buildings have been erected in the western office districts: a 500,000 square

feet (12-storey) building in the Heartland district (completed in 1999). and a twin-tower Roysl Bank

edifice (800,000 square feet) in the Meadowvale district is under construction. In the Woodbine/Steeles

distict, a building for Call-Net (650,000 square feet) is under construction in 2000 (Royal LePage,

Toronto Office Space Market, Statistical Summary, Year-End 1999).

Office parks are well separated from residential areas, and negative over-spills from office

parks have not surfaced. However, conflicts do arise between office park proponents and others. Since

office parks contain industrial and warehousing uses, intemal conflicts adse over roads and parking

facilities. The interests of truck users (industrial and warehouses owners) and passenger car users

(office tenants) freguently clash. Also, office buildings seem to accrue in mixed industriaVoffice parks

over time and at a certain stage higher capacity passenger transpoitation facilities (more roads or

public transit) may be required. This becomes a problern for municipal govemments, who want to

promote suburban downtowns, which are easier to serve with public transit facilities than are office

parks. To a large extent, office parks were developed in spite of the attempts of Metropolitan Toronto

to restrict this type of development. The 1981 Metropolitan Officia1 Plan stated that no new office

centres should be buiit; however. the 1991 Official Plan designated a number of suburban clusters for

office development in order to reduce the flight of development to the outer suburbs of the CMA.

6.4 Sequential Cycles of Investment within the Metropditan Realm Switching of investment between different o f f i i districts is a newly emerging phenomenon in the

Toronto CMA. Some districts gain substantial amounts of o f f i space, h i l e other districts experience

relative decline, stagnation, or even abandonment. This is part of the cyclical process of investment

within the urban realm. Some places becorne attractive for investment, while othen experience

disinvestment. Neoclassical interpretations consider uneven spatial development as a ternporary

phenomenon. Over time as geographical expansion reaches its limits, the system should move into

equilibrium and the performance of different locations should converge (Richardson, 1969; Watkins,

1980). Hence, capital moves fmm high cost areas (in tenns of land and building cost) to low cost

locations. On the other hand, another perspective views dis-equilibrium a typical phenomenon as

locations that gain initial advantage continue to build on their edge while these disadvantaged fall

behind (Myrdal, 1957; Clark et at., 1986). Capital flows, according to the Manist theory. move from

locations with low profit potential to high profi potential (Clark, 1980; Harvey, 1982,1985; Smith, 1984);

however, this uneven spatial configuration is a long-term phenomenon. Further, spatially uneven

development is an essential ekment of growth in capitalist economies (Broweît, 1984). When new

areas of growth are exploited to the point where profi rates fall, capital flows to previously undeveloped

areas (Beauregard, 1993).

Office development in the 1990s in Toronto illustrates sequentia! and simultaneous nature of

spatial investment and disinvestment in office buildings. In the fint haf of the 1990s, when almost no

office developmen! was punued in the City of Toronto, its total office flwr-space declined in absolute

terrns. This decline can be attributed to the absence of new constriction and the deletion of office space

through convenions and demolitions. As a result of historically high vacancy rates, negative net rents

and the demand for residential space, office buildings were converted to residential buildings. The

trend to convert vacant or almost vacant office buildings to residential space began in 1993 when the

City of Toronto eased rules restricting such convenions (Real Estate News, Febniary 17, 1995). In

early 1995, sixteen conversion projects were underway or in the approval process, representing 1.4

million square feet of office space (Royal LePage, 1995). Most of the conversions were restricted to

older buildings either in Downtown or Midtown. One of the areas that suffered the most from

convenions was the Yonge-Eglinton area, one of the three nodes constituting the Midtown district.

According to the report by Royal LePage, 6.5 percent of the area's office inventory was either

converted or proposed to be converted (Royal LePage, 1995). The City and local ratepayen

discouraged office development in this area (see section 6.3.2).

Parallel to convenions of office buildings in certain parts of the City of Toronto, reinvestrnent in

the conversion of manufacturing and wholesale buildings into office space occurred in other areas.

Under the Centra! Area Plan, the area West of Toronto's Financial District was zoned for industrial use.

Pressures from the development industty resulted in bylaws that permit commercial development and

extensive office development in a sub-area of the industrial district just west of the Financial DistrÏct. In

the 1980sl both new space (2 million square feet) and renovated space was put on the market in this

area. The City was detennined to keep offie development out of the garment district (further west of

the Financial District) in order to maintain industrial jobs downtown (Metropolitan Toronto Business

Journal, July-August 1985). In the mid 1990s. however, the gannent district, also known as the King-

Spadina district, was opened by the City for further office redevelopment (together with the area east of

the Financial District, King Parliament) and was designated as a reinvestment area. These areas were

'de-zoned' allowing any use consistent with density and simple compatibility guidelines (Globe & Mail,

April 29, 2000). The re-use of older warehouses and manufacturing facilities located in the urban core

for office uses is evident in other cities, such as Vancouver (Hutton, 1998) and Chicago (Rast, 1999).

Until then the buiit fabric of this district consisted of mainly buildings that were buitt in the 1900-1930

period, usually 5-6 stories (but also a few of 10 stories), which were multi-purpose 'loft' buildings used

for Iight rnanufacturing and wholesale. As the barriers to the reuse of these spaces opened, buildings in

this district were converted to fit the needs of the 'new economy' such as architects, publishers, fashion

designers, software developers, new media companies, or digital content developers. These types of

companies, which employ professionak of various kinds, opt for new types of spaces which have

'character' and histocy, and they are dissatisfied with the traditional office buildings. The prefened

buildings have architectural attributes such as interior post and beam construction, exposed intenor

brick, windows on al1 sides, and hardwood floors (Daily Commercial News, October 20, 1998). As a

result of this process, a considerable number of buildings in this district were retrofiied by upgrading

mechanical systems and information systems. How far this process has gone is not quantifiable at the

moment. There seems to be some resistance to acknowledge these buildings as office buildings.

The case of office development along the Don Valley comdor provides illustrative evidence of

sequential and simultaneous investment and disinvestment practices. Office development in the area

staited midway between the Gardiner Expressway (the expressway that mns along Toronto's

waterfront) and Highway 401 along the Don Valley corridor. As the noithem sections of rnetropolitan

Toronto were experiencing rapid population growth and as eadier office parks 'aged', office parks along

the Don Valley Parkway leaped northward. Older office districts in the south lost their attractions.

In the mid-1960s, when the fint office paik in the Don Valley comdor was developed, it

constituted a pioneering experiment in office devekpment. The commencement of flemingdon Park

(Don Mills), Metropolitan Toronto's first office park, constituted an opportunity to switch offce-building

investment from its traditional location in the downtown core to a sububan site. In the mid-1960s,

Olympia & York Developments bought the bulk of the 600-acre site that would eventually constitute

Flemingdon Park (Foster, 1993). Located on a major north-south expressway in metropolitan Toronto,

a short drive from the major east-west highway. Highway 401, and the fact that it was an island of

undeveloped land consthted Ïts main advantages. Once flemingdon Park was partially developed

(and land surrounding it covered by rapidly growing residential areas), a new round of investment was

undenvay in the Consumers Road office district further north. Until the eady 1960s, the parcel of land at

the Don Valley Parkway and Highway 401 intersection was rnainly familand. By the earfy 1 9 7 0 ~ ~ two

intemal roads were built and the Don Valley Parkway was being extended northward alongside the

western boundary of this parcel of land (Matlhew, 1989). Accessibility and available land for

development attracted office development from the late 1960s. and especially during the 1970s. when

Consumers Road became the prime area of office development in the Don Valley corridor (Table 6.10).

Table 6.10 Additions of new office space along the Don Valley comdor, selected yean, 1961 -99 (percentages)

Office Park 1961-70 197141 1982-92 1993-99 Don Mills 72.3 22.8 8.6 O

Duncan Mill 11.4 15.7 8.6 O

Consumers Road 16.3 37.9 9.4 O

Don Valley corridor (percentage) 100.0 100.0 100.0 100.0 Total additions ('000 square feet) 3,224 6,185 13,567 91 7 Source: Same as Table 6.3.

Rapid population growth at the northeastem fnnge of the Toronto CMA beyond the Metropolitan

boundaries, prirnarily in Markham and Richmond Hill, coupled with cheaper land and lower taxes have

attracted more office development further north along the Don Valley Parkway corridor. Devefopment

leaped to the intersection of Highway 404 and Steeles Avenue in the eariy 1980s. and further north to

the intersection with Highway 7 in the late 1980s. The construction of a new highway, Highway 407, in

the mid-1990s has contributed to the further attraction of the WoodbineMighway 7 o f f i i cluster, which

became by the late 1990s a major office development cluster in the Don Valley comdor (Table 6.1 0). In

the 1980s (1 982-92), the role of the older office parks as attractive investment arenas for new office

developrnent has diminished Mi le othen have been experiencing continuous growth. In the 1980s1 73

percent of new office development was in the newest office parks, Woodbine/Steeles and

WoodbineMighway 7. In the 1990s (1993-99) al1 new office development along the Don Valley corridor

was in these two office parks.

In the 1990s, older office clusters such as Don Mills. Duncan Mill and Consumers Road have

been experiencing relative stagnation and several office buildings in these districts were rernoved from

the inventory as they were converted into residential and other uses, or office buildings were

demolished and the parcels of land they stood on rernain vacant. On the other hand. office

development was funneled into the newest office parks, as these clusten have become the favourite

locations of office development In 1998-99, as the office market moves from depression to moderate

growth, the major areas experiencing office development have been selected o f f i i parks. The most

recently developed office park in the Don Valley corridor, WoodbineMighway 7 together with the offce

districts in the Airport Complex (Airpoit, Heartland, and Meadowvals) have accounted for 88 percent of

new office construction in the Toronto CMA in 1998-99 (more than 2 million square feet). Office

buildings under construction in 1999 in these areas accounted for 93 percent of the floor-space of the

office buildings under construction in the Toronto region (Royal LePage, Toronto Office Space Market,

Statistical Summary, Year-End 1999).

6.5 The Changing Character of Toronto's Office Stock The stock of office buildings and the office districts they are part of shows a great degree of variability

across rnetropolitan space and across time. Between the 1950s and the 1990s, the landscape of

offices has changed from being concentrated in a small downtown area with relatively small buildings

to a multi-nodal pattern with buildings of rnany sizes.

Office buildings have increased greatly in size over time in the Financial District. the Downtown

district and in the suburban downtowns. Even office parks have witnessed the construction of buildings

with larger amounts of space. However, paralfel to the construction of large buildings, small office

structures have prevailed in office paiks. The 1990s saw a turn in ternis of office buildings constructed

or re-modeled: large towen with multiple occupancy ('speculative space') have given way to smaller

customized buildings for single occupancy. Al1 of the 1990s large-scale buildings in office parks are

custom-built for single occupancy. Along with convenions of office buildings to other uses, a

phenomenon discemible prirnarily in the 1990s, built structures were recycled as offce buildings.

These 'new spaces' located in old industrial districts, such as the King-Spadina district, may be mula-

tenant buildings, but these multi-tenant buildings are reused spaces of srnall-to-medium size industrial

and multi-purpose buildings.

The character of off= districts is also subject to change. Since the 196Cs, office clusten with

large buildings in tight spaces have competed with the low-density spaces of office parks. In the 1990s'

however, high-density clusten stopped growing, while office space was added in office parks and in old

industrial areas. However, not al1 office parks continued to add new office space; some experienced

stagnation and even absolute decline in office floor-space. Older office parks were 'abandoned' in

favour of newer office paiks. As a resuît, the oldest office park in the Toronto area, the Don Mills district

(earlier known as Flemingdon paik) has seen an absolute decrease in the office building inventory in

the 1990s through demolitions and through conversion to residential and non-office uses. At the same

time, the districts of WoodbineMighway 7 and the Airpoit sustained a strong growth of office

deveIopment.

The uneven distribution of real estate investrnent in office buildings is a necessary condition in

the production of real estate in capitalist economies based on the intemal characteristics of the growing

economic sectors. Wihin the suburban sphere, investment migrates between locations according to

availability of greenfield sites (in conjunction with accessibility). lnvestment in suburban locations in

which development becomes complicated experience declining profiiability and their share in

development diminishes in favour of inexpensive undeveloped land. This allows the continuation of low

densities, although larger office buildings may be erected. In the 1990s. strong demand, driven mainly

by the fast-growing high-tech sector (with a preference for office park development), the proximity to

large suburban labour pools, and further advances in telecommunications have reinforced office

development in the suburban locations that were able to deliver high accessibility and availability of

land. However, these 'preferences' are also accompanied by structural conditions in the older office

districts, where an intriate land use network and residents' opposition gives rise to barriers. Capital

that seeks to minimize resistance is encouraged to look for more favourable locations.

The variety of office districts in the Toronto area, each with specific characteristjcs, provides

real estate companies diverse areas of operation in which each Company cari possibly fit. The

compatibility or the division of labour between real estate companies wiaiin the Toronto area in the

subject of the next chapter.

CHAPTER SEVEN

THE SPATiAL PRACTICES OF OFFICE DEVELOPMENT

COMPANIES AND OFFICE DEVELOPMENT DISTRICTS IN

TORONTO

In the previous chapter I have shown the physical characteristics of different office districts in Toronto.

In the introduction and in a preliminary way in Chapter Three, I have argued that developen (and

investors/owners) operate within specific territories within the urban region. In this chapter further

evidence conceming the spatial selectivity of developers and owners of office buildings will be

fumished. The major concem of this chapter, however, will be bringing together the physical

characteristics of office districts, the municipal actions that shape these districts, and the actions of

developers which also create and reproduce these districts. The combination of ph ysical characteristics

and the actions of key agents creates the basis for the concept 'office development district'. Although

the literature on urban development recognizes the importance of specific sub-areas or 'sub-markets'

within large urban areas, the concept of office development district has not been articulated in this

literature.

The notion that real estate development is highiy dependent on specific conditions has been

suggested throughout this dissertation and in nurnerous studies (for exarnple, Leitner, 1994; Pryke,

1 994a; Bryson, 1997). Other researchers (Knox, 1993; Logan, 1993; Beauregard and Haila, 1997)

stress the tension between local and global real estate markets, but even these studies acknowledge

the significant role of local conditions in shaping real estate developrnent. Studies on office markets

indicate that within a particular metropolitan area office markets are subject to further spatial

segmentation (Clapp et al., 1992; Hanink, 1997; Rabianski and Cheng, 1997; Wolverton et al.. 1998).

This segmentation is not Iimited to the traditional notion of downtown versus the suburbs. lt has been

increasingly acknowledged that there are a variety of commercial property sub-markets as is shown by

Healey's (1 998a) recent statement that 'it is now clear that land and property development markets are

now much more segmented and differentiated than had been assumed in earlier penods" (p. 221).

This segmentation is a resut of several factors. First, it is a consequence of a segmented

demand; different types of usen generate differences in demand in t e n s of building size and location

(Gad, 1985,1991 a; Matthew, 1993b; Pivo. 1993). However, the suggestion that demand of office usen

dictates the supply of space has been challenged, since the development process is relatively lengthy

and there is a time h g between the indication of specifii demand and actual product delivery to the

market (D'Arcy and Keogh, 1997). At particular times, especially in expansion pariods, a considerable

part of office developrnent is speculative (iniliated with no commitment from future tenants). Therefore,

the perceptions and preferences of the producers of offne space are pivotal in determining the

characteristics of office development.

Second, space, both institutional and physical, is highly fragmented and specialized. Municipal

zoning regulations define the type and location of certain types of development. Physical

characteristics, like accessibility and availability of land, which are often intertwined, propel different

kinds of office development. Govemments and real estate companies do not operate in isolation but

rather tend to cooperate. As suggested by Logan and Molotch (1987) and Haila (1991), some real

estate companies attempt to manipulate development and for this purpose govemments are needed.

This in turn results in diverse and cornpetitive office development 'markets' in which a substantial

number of developers operate. In the segmented urban structure of rnetropolitan areas, there are

spatial opportunities that allow different real estate companies to find their niches or operational

s paces.

Although the literature on urban development in general and on office development in

particular is replete with references to the influence of developers, I have argued before that there are

structural necessities that bring developers and municipal govemments together. This calls for an

empirical investigation to establish in which particular circumstances and in which patticular events or

episodes real estate developers gel away with good or inappropriate 'deals'.

What follows is detailed information on the spatial selectivity arnong office deveiopers in

Toronto. Employing systematic data that is largely based on the largest office deveiopen in the Toronto

area and a patchwork of data on some of the smaller developers, the spatial configuration of their

operations is descnbed. TWO cornpanies with distinct spatial practices are examined in detail. In the

second section, I pmvide propositions about the concept 'office developrnent district'. These districts

embody the notion of a localized and segmented office development process and its particular physical

manifestations. The third and major section is about case studies of important types of office

development districts in the City of Toronto. and the suburban cities of North York and Mississauga.

7.1 Spatial Selectivity among Real Estate Companies in Toronto The real estate companies engaged in office development in Toronto exhibit spatially distinct practices.

Each type of real estate Company specializes in paficular settings. Figure 1 and 2 (Introduction, p. 4)

show the most dramatic differences in the spatial selectivity of office developeis in the Toronto region.

The operational spaces of the large developer were identified thmugh the examination of annual

reports (for publicly held companies), and various other sources, such as newspaper articles,

publication in the industry joumals, and oie web sites of several companies. These real estate

companies were chosen because they are the most prominent companies that were engaged or are

still engaged in office development or ownenhip of office buildings in the Toronto area.

At a first cut, the spatial division employed here is faiily cnide. Developen are classified as

either core or suburban oriented; oniy a few have both substantial core and suburban office porîfolios

(Table 7.1). The definition of the core includes the Financial, Downtown and Midtown office districts.

The areas outside of the core are considered suburban. Later in this chapter a more finely tuned

differentiation between the spatial practices of developen will be provided.

A number of thresholds were used to differentiate between spatial categories in Table 7.1. A

company is considered as operating mainly in the core if at least two-thirds of its Toronto office floor-

space is in the core. A subuhan company has at least two-thirds of b office floor-space in the

suburbs. Companies that are not pari of one of the above categories are considered as operating both

in the core and in the suburbs.

Table 7.1 shows a set of the large developers and ownen of office space in the Toronto area

for four cross-section dates between 1971 and 1999. Throughout the three decades, the focus of the

largest developers and ownen was in the core area. The most substantial office developments of the

two largest development companies, Cadilbc Fairview and Olympia 8 York (OBY) were in the core,

although 0 8 Y was an exception in 1971, when it was still a suburban developer. The focus of mid-

sized developers was in the Oowntown and Midtown districts. Bramalea Limited and Manulife Financial

Real Estate (a division of the Manufacturers Life lnsurance Company) are examples of this tendency;

Manulife developed office buildings mainiy in the YongeJBloor area (including its head office), and

Bramalea developed buildings that are adjacent to the major subway stations along the Yonge Street

line. Other companies had a more balanced distribution between downtown and suburbs. Y&R

Properties was essentially an office developer in the Financial District, but beginning in the early 1970s,

the company undertook office development in an office park (Consumen Road). H&R Developments, a

developer in the suburban realm until the late 1970s, began developing office buildings in downtown

Toronto in the eariy 1980s, and continued to engage in development in suburban locations in North

York and Mississauga.

Table 7.1 The operational spaces of selected real estate companies in the Toronto CMA, selected years, 1 971 -99 (office portfolio)

Develo per 1971 1981 1991 1999 Cadillac F a i ~ e w CORE CORE CORE COR€

Olympia 8 York

Bramalea

Brookfield

YbR

Manulife

Royal Bank

Oxford

Trizec

ClBC Development

Hammerson

H&R

Marathon

lnducon

Menkes

Shipp

Orlando

SUBURBS

WA

WA

CORE

COR€

N/A

NIA

CORE

NIA

CORE

NIA

N/A

N/A

N A

NIA

N/A

CORE

CORE

N A

NIA

CORE

COR€

CORE

CORE

NIA

CORE

CORE+SUBURBS

SUBURBS

SUBURBS

SUBURBS

SUBURBS

SUBURBS

CORE

CORE

COR€

NIA

COR€

COR€

CORE

CORE

CORE

SUBURBS

CORE+SUBURBS

SUBURBS

SUBURBS

SUBURBS

SUBURBS

SUBURBS

CORE

N/A

COR€

N A

COR€

COR€

CORE+SUBURBS

CORE+SUBURBS

CORE+SUBURBS

NIA

CORE+SUBURBS

N/A

NIA

SUBURBS

SUBURBS

SUBURBS

Note: N/A - non applicable when the company has insignificant oKce portfoiio (les than 100,000 square feet), ceased to exist, or data is not available. Source: Va rious, as specified in section 2.3.

Some of the suburban developers had and still have extensive areas of operations white other

developers specialize in limited settings. The suburban developers in general have smaller-sire office

portfolios than their counterparts in the core; however, the rapid growth of office space in the suburbs,

particularly in the 1980s. transformed some of them into sizeable office developen.

The spatial practices are not only differentiated between core and suburban locations, but also

between 'office districts' and between municipalities. Within the City of Toronto a high degree of

specialization is evident. Cadillac Faiwiew and Olympia & York were not 'justJ downtown developers.

More specifically, both focused on Toronto's Financial District: Cadillac Fairview from the late 1960s

onward and Olympia & York beginning in the eaily 1970s. Most of the office buildings owned by the

Royal Bank and ClBC (bank) were in the Financial District Other companies developed office buildings

in the areas surrounding the downtown. Allied Canadian Corporation, for example, a Company founded

in 1988, began to recyde older industrial buildings on the western and eastem fringes of downtown in

the mid-1990s.

Spatial selectivity according to municipalities and physical charaderistics is especially evident

in the case of suburban developen. The large suburban developen have operations across the mole

suburban realm, whereas smaller developen focus on one or two municipalities. One of the largest

suburban office developen in the Toronto region until % bankniptcy in 1992. lnducon Development

Corporation, was the most divenified developer in t e n s of municipalities, lnducon had office buildings

in five different municipalities: North York, Etobicoke, Mississauga, Oakville. and in Markham. Another

large suburban office developer, Menkes Developments, has been invohred in development in North

York, Mississauga and Richmond Hill. On the other hand, the office buildings developed by the Orlando

Corporation are exclusively in Mississauga. The second-tier suburban developen are even more

focused on specific municipalities: the smaller the developer, the more likely that the focus of office

development is on a particular municipality. In the case of highly articulated territones, office

development is usually an ancillary operation for real estate companies, whose major activity is

residential development (entire subdivisions or apartment buildings). For exarnple. S.B. Mclaughlin

developed office buildings only in Mississauga since the majority of his land and residential

development was in Mississauga (see section 7.3.3). In a similar fashion, Shipp Corporation developed

office buildings in two adjacent municipalities (Etobicoke and Mississauga), following its single-family

housing and high-rise residential developments in these municipalities. This limited scope of office

development (usually less than half-amillion square feet) replicates the spatial patterns of other

ventures perfoned by these types of developers. For example, the Magnolia Group built office

buildings only in Scarborough and the Matthews Group and Kaneff Properties, both developed office

buildings only in Mississauga.

In addition to specific municipalities, suburban developers specialize in different types of

developments: some developers tend to focus on suburban downtowns while others focus on office

parks. Inducon, which developed office buildings in f i e municipalities, was primarily an office/business

park developer; Orlando develops office buildings only in business parks. On the other hand,

McLaughlin and Shipp developed office buildings only in subuhan downtowns.

At the metropolitan scale, the spatial practices of developen are generally invariable.

Developers usually remain in their familiar settings, and only occasionally venture into new areas. In

case of changing their operational space, the more prominent move is 10 divenify operations within the

suburban realm or to switch from suburban developments to downtown locations. This type of

developer is similar to the type that Logan and Molotch (1987) and Haila (1991) refer to as

serendipitous developers. Shipp Corporation developed an office complex in Etobicoke in the 1970s,

and in the 1980s it carried a limited diversification by moving to the neighboring municipalrty in the

west, Mississauga, constructing the hrgest office complex in the Mississauga City Centre (Canadian

Building, January 1 972; Fe bruary, 1 978).

Spatial practices are matched by financial strength of real estate companies. Smaller real

estate cornpanies begin their operations usually in suburban locations where development requires

less capital and limited expertise. Suburban developments are smaller in ternis of office buildings

constructed and therefore enables smaller real estate companies to act as developers. As a real estate

Company acquires more capital, expertise and reputation, it is able to engage in the development of

larger buildings. This rather rare occurrence was the case of Olympia 8 York. Olympia & York started

its office development business in subutban Toronto (North York) in the 1960s; this was its prime arena

until the early 1970s. In the late 1960s, Olympia & York launched its first development in the core, and

by the early 1970s it penetrated into the Financial District by building one large-scale building, and

eventually developing the largest office building in Canada, the First Canadian Place. However,

suburban real estate companies that remain in the suburbs continue with small to medium-size office

development.

In the following paragraphs the spatial practices of Cadillac Fairview and lnducon are

exarnined. These two cornpanies present extremes in ternis of spatial practices. Cadillac Fairview is

one of the largest Canadian developers; in Toronto its continuous focus was on the Financial District

and Downtown district. lnducon was probably one of Canada's largest suburban office developers, with

development taking place primarily in suburban Toronto. For both companies rich documentation is

available, and several key persons of these cornpanies were interviewed.

7.1 .1 Cadillac Fairview Corporation

From its beginning as an office developer, Cadillac Fairview (initially Faiwiew) was a core area

developer. The company's first two office buildings were in the Downtown district, and then it moved

into the Financial District with the development of the Toronto-Dominion Centre. Until the mid-1970s.

Fainriew and Cadillac, still separate entities. focused on three office clusten: the Financial District,

Midtown (Bloor Street West), and North York (Sheppard and Leslie. developed by Cadillac). In the mid-

1970s, Cadillac Fairview launched its second large-scafe project, the Eaton Centre in downtom

Toronto, a shopping centre with a substantial office component Later in that decade, Cadillac Fainriew

commenced another development by joining forces with another real estate company, Farnous Players,

tu develop a business park (5 office buildings) in Etobicoke near Pearson International Airport.

In the 1980s. Cadillac Fairview continued to develop office buildings in the Financial District

and in the Downtown district, namely fumer parts of the two multi-phase Toronto-Dominion Centre and

Eaton Centre complexes. In addition, its interest in suburban development expanded as it started a

new development in North York (YongeNork Mills area). In the mid 19805, Cadillac Fairview made an

atternpt to penetrate into an unfamiliar office development territory, the City Centre in Mississauga, but

lost to another developer, Daon Development Corporation. In the eaily 1990s, Cadillac Fairview

completed the development of the Toronto-Dominion Centre and the Eaton Centre, and its operations

shifted to trading (acquisition and disposition of properties), and project management.

In spite of some suburban projects, throughout the last twenty-five years Cadillac Faiwiew has

maintained its focus on the Financial District and Downtown (Table 7.2, see also Figure 1 in the

Introduction). The complexes located in these districts, the Toronto-Dominion and Eaton Centres have

been the core of Cadillac Fairview's portfolio in Toronto, constituting in terrns of floor-space, between

two-thirds to three-quartes of its Canadian office portfolio. This fact reflects the substantial arnount of

capital invested in these projects, which in itself reflects a long-terni strategy. At the same time, the

share of its BIoor Street holdings, which were considered less successful, declined from 25 percent in

1975 to 8 percent in 1999. The share of its suburban office portfolio increased substantially between

1987 and 1999. particularly due to the acquisition of a number of office buildings.

According to a former president of Cadillac Faiwiew, the company prefened downtown Toronto

because there was potential for stability and for improving values, and because of the 'scarcity factor'.

According to the same source, in the subuibs, one location is not that different from other; there is an

infinite number of sites. and it is very hard to take a position in the market with any degree of

confidence that the market is going to be ovenupplied. Downtown Toronto, on the other hand, is a

focal point. Transportation, especially rapid transit, is oriented to bnnging suburban residents

downtown. The confluence of firnis that do business together, and the limited availability of space

within a walking distance, made the company believe that they would get premium rents for space that

is in a core location (interview with a former president of Cadillac Faiwiew).

Table 7.2 The office portfolio of Cadillac Fairview in the Toronto CMA, selected years, 1975-99

Location - 1975 - 1987 - 1999 ûffïce space % Office space % ûffice space %

('000 square feet) ('000 square feet) ('000 square feet) Financial District (1) 2,827 67.0 4,171 70.7 5,050 54.1

Downtom (2) O O 506 8.6 1,986 21 -3

Midtown (3) 1,087 25.8 707 12.0 779 8.4

Suburban (4) 305 7.2 51 5 8.7 1,514 16.2

Total 4,219 100.0 5,899 100.0 9,329 100.0 Notes: (1) Toronto-Dominion Centre and 20 Queen Street West. (2) Toronto Eaton Centre and Sirncoe Place. (3) Bloor holdings include buildings b t e d on B b r Street West in the section between Bay and Avenue Road. (4) Suburban locations include mainly buildings at the SheppardReslie intersection (1975), at Sheppardt'eslie and YongeNork Mills (1 98ï), and at YongeNork Mills, and in the Don Valleyflglinton area (1999). Source: Cadillac F a i ~ e w Corporation, 1975,1987 and 1999 Annual Reports.

According to another former presiden! of Cadillac FaiMew, it regarded downtown assets as long-teim

holdings. The same was not the case with the suburban buildings, which it considered as opportunities

to develop and perhaps to sel1 for profi. Until the early 1 9 8 0 ~ ~ tenants did not consider suburban

locations as alternative locations to downtown. Tax incentives were another reason for holding real

estate assets for the long ten . It was better to hold on to a property, because when the depreciation

runs down, the capital can be used to build another property. Selling a building makes it subject to

capital gains tax; therefore, it was not profitable to engage in selling buildings as a strategy (interview

with a former president of Cadillac Fairview).

The office development practices of Cadillac Fairview indicate the spatial precision of real

estate investment. Capital investment is not arbitrarily distnbuted over space; there are preferred nodes

into which investments are funneled. This is especially the case with long-terni investment. Short-terni

investments are more spatially dispersed as they tend to follow opportunities. However, even here

Cadillac Fainriew showed a very narrow range of operatiom: basically two axes in the municipality of

North York (with the exception of a partnership in Etobicoke). Large complexes that reach a certain

threshold, such as Toronto-Dominion Centre and Eaton Centre, become almost independent entities in

the sense that they generate and sustain their own environment (see section 5.4.2). This type of

investment provides a regular incarne, and the value of these assets also appreciates over tirne;

however, the major complexes need constant investment to keep them 'updated'. Smaller complexes

or freestanding office buildings are likely to be noncore assets of large real estate companies and

more dependent on their surroundings. Hence, Meir income Stream is more volatile; in this case

disposing of these assets may offset this volatility and create significant one-time gains.

7.1.2 lnducon Development Corporation

lnducon Development Corporation was the largest suburban office developer in the Toronto region in

the late 1980s. In the mid-1960s. lnducon buitt its first office building which was the company's head

office; it was a small building ( les than 20,000 square feet) located in an industrial area in North York

(Don Valley Parkway and Lawrence Avenue). The decision to build this office building at that location

was based on the fact that "the land was cheap and centrally located" (interview with the founder of

Inducon).

Inducon's fint large-scale office development was in the Consumen Road district (Don Valley

Parkway and Highway 401). In the mid-1960~~ lnducon bought 70 acres of what then was a greenfield

site, and the Company became one of the first developen in this area. In the 1980s. lnducon

experienced exponential growth. During this decade, lnducon moved from one office development to

another. In the northeastern section of the metropolitan area, lnducon moved north along the Don

Valley Parkway into the area of Victoria Park and Steeles (the municipality of North York), and to the

intersection of the Parkway with Highway 7 (Markham). lnducon also developed office space in the

west-end of the Toronto area, moving to the Airport area (Etobicoke and Mississauga), Mississauga

City Centre, and Oakville. By the late 1980s, lnducon was the largest suburban office developer in the

Toronto area with over 3 million square feet of floor-space developed (Table 7.3). The company's

strategy showed similar features in each development. lnducon looked for opportunities to buy cheap

land with high accessibility and get it rezoned from industrial to commercial, largely office development.

By buying cheap land, it was able to build surface parking, thereby tapping into a specific suburban

market for car-oriented tenants. Profas were made principally thmugh the rezoning of land. This

strategy could, of course, not be used in downtown Toronto, where land was expensive, below grade

parking was often a precondition for development, and the capital needed to commence development

is far greater than in the suburbs (interview with Inducon's founder). Also, rezoning would have been a

very major problem in the downtown area, unleashing resistance from a varieîy of opponents.

In its early phase, lnducon took advantage of loopholes in North York's zoning bylaws. Until

the late 1960s North York did not allocate land for office buildings. As a result, office buildings were

permitted as secondary uses in industrial areas, since they wen considered as being associated with

manufacturing rather than accommodating businesses that senred or perfomed other functions

(Matthew, 1989). In the eady 1980s, North York introduced an office development policy, which

encouraged office development in selected business parks and prohibited office development in

industrial areas (North York Official Plan, Amendment No. 261). Inducon, as a stakeholder in these

industrial areas, objected to this move since it had a direct effect on Company's profits. Until this policy

was introduced, most industrial areas were in fact business parks, and lnducon was able to constnict

inexpensive office buildings in these districts. The proposed policy would have denied lnducon the

abildy to profit from erecting o f f i buildings on industrial zoned land (see section 7.3.2).

Table 7.3 Inducon's office portfolio in Office Parks in the Toronto CMA, 1982 and 1991 ('000 square feet)

Location - 1982 - 1991 Office space % Office space %

Consumers Road 700 93.3 700 21.2

Highway 404n O O 300 9.1

Highway 4WSteefes O O 300 9.1

Mississauga (1)

Oahïlle

Other

Total 750 100.0 3,300 100.0 Note: (1) This development is in the Missiiuga City Centre. Sources: Newspapers, advertisements, and an i n t e ~ e w with the founder of Inducon.

Inducon's office buildings are easily discernible in style and sire, even when driving along an

expressway. Office buildings developed by lnducon are utilitarian; behind each building there was a

strict economic rationale, which meant building the most economical buildings that would enable

lnducon to invest less and charge less rent than other developers. To cut on cost lnducon almost

duplicated its office buildings over the areas it was active in. In addition, until the late 1980s, lnducon

built above grade parking to make it buildings less expensive. This, in tum, resulted in specialized

niches in which these conditions could be achieved. These well-defined spatial interests made lnducon

highly dependent on the witlingness of selected suburban municipalities to engage in providing the

means for low-priced office development.

7.2 Office Development Districts Cadillac Faiwiew has developed some of Canada's largest and most distinct office buildings, mostly in

extremely difficult settings in the City of Toronto. It has also developed somewhat less noticeable

structures on main streets in suburban North York. Inducon, on the other hand, erected standard boxes

largely on greenfield sites in selected suburban municipalities. These two examples show a confluence

of developen, municipalities, physicai settings, and office development These connections lead to the

notion of an 'office development district'. ln an office development district certain preconfigurations,

processes of making and changing development niles, various agents, and distinct development

results corne together. New rounds of development, often consisting of redevelopment, reproduce the

office development district until some fundarnentally new conditions arise.

In the preceding discussions, individual real estate companies and their operations were

emphasized. However, in office development districts monopoly situations are only rarely achieved.

Therefore, the discussion of office development districts must recognke relationships between office

developen (and owners) operating in the same territory In the f o n of a series of propositions, the

basic features of office development districts are highlighted.

1. Oevelopers work in one or a series of distinct sub-areas of the city. While monopolistic control may

be advantageous, it is rarely achievable. Hence, oligopolistic conditions very often prevail in office

development districts.

2. When office developers cannot enjoy monopoly, they compete for tenants in an office development

district, but they also cooperate to create and maintain advantageous if not necessary conditions for

the development of new office space and the maintenance of existing space.

3. Spatially well-defined territories are favourable for a numbar of reasons. Generally, homogeneity is

beneficial because it allows developers/owners ta:

0 achieve efficiencies by constnicting the similar buildings rneasured by size, height, and density;

0 hook the building into the appropriate infrastructure (e.g. roads, types of parking facilities);

require and defend appropriate transpottation facilities:

communicate efficiently with prospective and existing tenants.

4. Developers beneft from the association with similar kinds of real estate companies in the same

territory In office development districts, developen and offne orniers with similar interests can use

their joined force to negotiate with municipal govemments for adequate support.

5. The homogeneity associated with office development districts needs to be established and has to be

maintained; hence offne developen and ownen join to defend the territory from changes and

intrusions by outsiders.

6. Developen require municipal govemments not only to provide specific infrastructure for the office

development district, but also to engage in negotiations which define and protect the office

development district.

7. Municipalities have an interest in attracting office development to specific places within a

municipaliky; and they need office developen who erect and maintain offke buildings in these districts.

8. Office development districts are differentiated and preconfigured by location, transportation facilities,

the presence or absence of previous development, and the character of sunounding land uses and

interests.

9. Given varying degtees of expertise and financial strength, developen have to find appropriate office

development districts for their operations. Negotiation costs Vary spatially (high in inner city settings,

lower in suburban settings) and may disable or enable developers to operate in certain office

development districts.

10. Developerdowners of office buildings, users and municipal govemments have an interest in

maintaining development districts. However, under new conditions, abandonment or redevelopment for

uses other than offices may occur.

These propositions are based on secondary literature discussed in various chapten, and on

observations made during research on office development in Toronto. In the next section, specific

examples of and evidence for the operations of office development districts will be presented.

7.3 Area-Specific Case Studies of Onice Development Districts The Toronto area provides an excellent arena for observing the emergence and functioning of office

development districts. The large and varied area contains older districts with 200-year development

history and districts where office buildings are presentiy const~cted on greenfield sites. As argued

before, real estate companies of different sire and capability have been active in this region. Above all,

the Toronto region consists of a differentiated municipal landsape. There are 27 local municipalities

(after the 1998 amalgamation 21), 'area rnunicipalities' according to legal definitions, in the Census

Metropolitan Area. The municipalities in which noticeable office development has taken place in the

post-WWII era generally have had populations of over 100,000 each at the time when developers

started to construct office buildings of reasonable size (over 20,000 square feet of floor-space). Most

office developrnent has taken place when these municipalities had 200,000 to 700,000-population

range. The size of these municipalities is of considerable importance when discussing office

development, because this type of development rarefy occupied a monopoly in discussions of urban growth and management.

Municipalities, especially the lowest level ones, are absoluteiy cmcial for any kind of

development or redevelopment to happen. While the upper level rnunicipalities (regional rnunicipalities)

and the provincial govemment provide region-wide macroçonditions through investment in major

transportation facilities and trunk sewers, the 'area municipalities' control land use through 'official

plans' and zoning bylaws. These detailed, legally sanctioned, land use control authorities and control

practices make it imperative for developen of office properties to interact with the municipalities. In this

interaction, bargaining is inevitable and can give rise to the notion that municipal govemments are

subject to inappropriate pressures by developen. It is my position here that the bargaining process is

subject to specific empirical investigation. The questions whether there is undue pressure by

developers and when a municipality 'sells out' have to be detennined based on empirical findings. The

major concem in the following pages is to detemine how office developen and municipal govemments

interact rather than to criticize the interaction between govemments and developers in general.

In order to demonstrate the ernergence and functioning of office development districts, three

municipalities have been selected: the City of Toronto. the City of North York and the City of

Mississauga. These three are important and interesting, because they are the municipalities with the

greatest arnount of office floor-space in the 1990s. They also have provided office developen with

quite different conditions and oppominities in the 1950-2000 period. In the City of Toronto office

developrnent has occuned exclusively as redevelopment; in North York greenfield development was

later challenged by the promotion of a large subcsntre on already developed sites, and in Mississauga

office development has occuned almost exclusively on greenfield sites. Each of the three municipal

govemments has had different interests and quite different approaches to offce development. This was

discussed in section 2.1.5 and will be elaborated upon below.

7.3.1 The City of Toronto

The City of Toronto has a 200-year history of urban development. At its very core there are parcels of

land, which saw up to fwe cycles of development and redevelopment. Its whole territory was fully

developed by the 1930s. ûffice development has always been redevelopment on already built spaces,

and has had to contend with complex conditions, since a socially mixed population and a variety of

business interests have displayed conflicting interests and visions.

Since the mid-1970s. the general objective of the rnunicipality has been to restrict office

development, and the so-called Central Area Plan spelled out the rules. In this plan, the Financial

District was subjected to restrictive measures, but in practice high-density office development

continued to be the hallmark of this district, especially in the 1980s. However, high-density office

development did not proceed smoothly; it was forged in a process of very intensive negotiation. The

detailed case of the Scotia Plata development in the mid-1980s illustrates the complex environment

that typifies office development in the Financial District. Areas sunounding downtown were zoned for

light rnanufacturing and other industrial uses. In the mid-1990s. when zoning restrictions in areas west

(King-Spadina) and east (King-Parliament) of downtown were rernoved, many old factories and

warehouses were retrofitted and converted to office space.

Toronto's Central Area Plan

The Central Area Plan, 'adopted' by the City council in 1976, was an ambitious attempt to shape the

downtown area by restricting, among other rneasures, the scale and density of office development.

Down-zoning was adopted; in the newly designated Financial District (the most intensively developed

office district) densities were lowered from a floor space index (FSI) of 12 to 8, while elsewhere in the

Central Area densities were lowered to an FSI of 4. According to this plan, future office employment

growth was to be managed by deconcentration and especially through the establishment of suburban

office centres (Frisken, 1988; Gad, 1999). The strategy of creating suburban city centres and other

secondary centres was also reflected in the Metropolitan Plan and welcomed by the suburban

municipal govemments. The Central Area Plan was in stark contrast to the previous plan, the 1969

Officia1 Plan, which recommended the future redevelopment of large parts of the downtown area and

encouraged the concentration of office buildings in central Toronto (Gad, 1979; Frisken, 1988). Until

the eaily 1970s. there were few explicit policy statements conceming offices as a specific land use, but

many actions taken by the various levels of govemments helped to facilitate the concentration of office

employment in central Tomnto. Before the approval of the 1969 Offcial Plan, the ctty had already

stimulated central area redevelopment through invesbnent in a new city hall, and through encouraging

the enlargernent of the proposed Toronto-Dominion Centre from merely a head office building to an

entire downtown complex (Collier. 1974; Gad, 1979; Lemon, 1985). Also, an important coalition of

downtown land owners, developers and employers. prirnarily banks, insurance companies and

depariment stores, exerted pressure through the so-called Redevelopment Advisory Council.

The uprîsing of citizens' groups against intensive redevelopment in the late 1960s and eariy

1970s, and the election of a 'reforrn' council in 1972, began to reverse the City's downtown

development policy. The emerging planning philosophy held that the development of new office space

in the Central Area should be limited to the capacity of transportation facilities that already existed or

had been committed prior to the plan. The construction of transportation facilities, according to the plan,

enhances the attractbeness and accessibility of the downtown area. and hence encourages new

rounds of office development (Frisken, 1 988).

While city planners considered developrnent in the city of Tomnto as a 'privilege' (Globe &

Mail, November 1, 1 974). developen considered it as a right. The idea of restricting development came

under attack from the real estate sector. Property owners suggested that it would diminish profits and

escalate rental rates. In addition, an organization representing real estate developen appealed to the

Ontario Cabinet seeking the elimination of a ceiling for the construction of new office space (Globe &

Mail, October 4, 1978). This group of developers even suggested that the downtown core should be

removed from the city's jurisdiction and placed under the authority of a separate entity, claiming that

the downtown core belongs not only to tho Ctty, but to the Metro region and the province (Globe & Mail,

October 29, 1975). After a long hearing process at the Ontario Municipal Board, the Ontario Cabinet

approved the Plan in 1979. Although giving its general approval, the Cabinet directed the City Council

to relax zoning restrictions if the dernand for office space grew rapidly. Even the 'reforrn' mayor of

Toronto at that time, John Sewell, recognized that The growth of office space depends more on the

economic climate than on a growth line suggested in the Central Area Plan" (Globe & Mail, February 3.

1 979).

Although development restrictions were imposed, exemptions were prevalent. In the 1 981 -91

period, fiieen office buildings were built in the Financial District at a densw of more than 12 times

(Metropolitan Toronto Office Bank Data, 1993), instead of 8 as indicated in the Central Area Plan.

Several of the most visible office buildings in the Financial District were endorsed by the City Council

after the Central Area Plan was approved. Toronto's City Council ovemhelmingly approved BCE Place,

located at Bay and Front Streets, although the denstty of this project was 12 times of the lot coverage

(Toronto Star, December 15, 1987). The Ci Council also approved the Bay-Adelaide Centre in 1989

(it was mothballed indefinitely in 1993). This 57-storey building is on a site zoned for a 25-storey

building (Toronto Star, May 25, 1989). In these cases, the prevailing condition for the approval of extra

density was the provision of public benefds, such as assisted housing and the preservation of historical

buildings. In one of the most publicized office developments in the 1980s. Scotia Plaza, a density of 16

times the lot coverage was approved due to historical preservation agreements and the transfer of

density rights. Although bonusing was clearîy a possibility outlined in the Central Area Plan, it involved

intensive negotiation in each building project.

ln the whole downtown area office development always seems to have involved negotiations

between developers and the City, regardless of 'official plans1 or development rights as per zoning

bylaws. The 'reforml and the Central Area Plan era were no exception and developers and politicians

kept on 'making dealsl, and downtown developers and their lawyers kept up the practice of close

relations with the members of City Council. These close connections and the notion of 'giveaway to

developers' were documented and criticized in the local and national newspapers (for example,

Toronto Star, November 5, 1988). As noted by an investigation of the Globe & Mail in the mid-1980s.

the rnajority of Toronto counciIlors received most of their campaign contributions from the real estate

industry. An analysis of the voting records of the councillors most reliant on the development industry

for their campaign funds, showed that these pofiticians have supported most of the development

proposals that sought increase in density in the downtown core (Globe & Mail, December 11, 1987).

The Financial District

The largest and densest concentration of office space within the Toronto CMA is in the Financial

District. Within this area of about 800 by 800 meters, a small number of large and powerful owners of

office properties control office development, specifcally the large publicly listed real estate companies

and financial institutions. In this district, the total office space built after 1960 was 27.4million square

feet; more than 60 percent was developed/owned by eight corporations, including joint ventures (Table

7.4).

In addition, the Financial District has a very distinct pattern of tenants. The majonty (56

percent) of jobs in 1989 were in finance, insurance and real estate (Gad, 1991 b). The designation of

this area as the 'Financial District' in the 1976 Central Area Plan with distinct boundaries and specific

zoning, have solidified the position of this area as primarily an office development district through an

act of municipal govemment.

Table 7.4 Top developen and ownen of office space built in the Financial District after 1960

Real estate company Number of buildings Office space ('000 square feet)

Cadillac F a i ~ e w Corporation (1) 6 4,600

Olympia 8 York Developrnents 3 3,700

BCE Oevelopment Corporation 2 2,300

Campeau Corporation (2) 1 1,500

Y&R Properties (3) 3 1,450

ClBC (bank) 3 1,400

Royal Bank 3 1,400

Sun Life 2 1,000

Total eight companks 23 17,350 (34%) (63%)

Total Financial District 68 27,400 (1003C) (100%)

Notes: (1) Toronto-Dominion bank was the joint venture partner in the TD Centre. (2) The Bank of Nova Scotia was a joint venture partner in the Scotia Plata. (3) The portfolio of Y&R indudes buildings it deveroped since the 1920s. Source: A compilation of sources presented in section 2.3.

A number of authors have suggested that the prevailing situation in the Financial District is that of a

spatial oligopoly, Le., a lirnited number of developers control the real estate market, namely the office

market:

o One of the advocates of the conspiracy theory, James Lorimer, insisted on 'the domination of office

space in downtown by a few corporate developers" and that the prevailing conditions eliminate She

smaller, less well-financed office developers" (Lonmer, 1 978, pp. 1 83-84).

O In the Ide 1980s, a report by a financial services company, Salomon Brothers, suggested that

"Buildings in the financial core are owned for the most part by a closely knit group of well-

capitalized developers and banks" (Kostin et al., 1989, p. 16).

A report of the Royal Commission on Corporate Concentration that examined Cadillac Fairview

Corporation in the mid-1970s concluded that there is no evidence of concentration; however, the

"surprisingly high 25 percent" of the class 'A' office space in the Financial District was cited (Gluskin,

1976, p. 82). This semioligopoly prevailing in the Financial District was illustrated in the case of

Olympia 8 York. In 1991, before buying 50 percent of the Scotia Plaza project. OBY sought clearance

from the Bureau of Competition Policy. Olympia 8 York appiied for an advanced ruling 'io lay to rest

fean that it is tightening a stranglehold on the Toronto real estate market" (Globe 8 &ill September

18, 1991), and more specificaliy on the office market in the Financial District. According to the Globe &

Mail. OBY owned directly about 18 percent of the Financial District office inventory; however, OBY also

had 36 percent stake in Trizec, which in tum owned about 68 percent of Bramalea (Globe & Mail,

September 18, 1991). 00th Trizec and Bramalea had existing and planned office projects in the

Financial District.

The Financial District contains a considerable share of the largest office buildings in the

Toronto area (al1 buildings over 1-million square feet, except one, and almost al1 buildings with over 30

floors are in the Financial District). The prime prerequisite for constructing or buying a building of this

size cals for a sizeable amount of capital. Hence, only large real estate corporations, which are

financially sound, are able to secure finance for their ventures. Moreover, a large amount of floor-space

on smali sites results in high-rise buildings with deep underground garages. Development of these

buildings necessitates high level of expertise. In case that expertise is not available intemally, real

estate companies use highprofile architects and specialized engineering consultants. Older buildings

are invariably in the way and cause lengthy negotiation about their demolition or some way of

incorporation, including cornplicated development right transfers. Large-scale office buildings in the

Financial District create spillover effects over large areas. The large number of owners and interests

involved results in lengthy negotiation processes. including hearing at the Ontario Municipal Board. As

a result, only the large real estate companies can engage in this type of office development. Since the

top-twenty buildings in the Financial District consist of the majonty of office space (55 percent of the

total office stock), it is reasonable to suggest that big corporations control the office leasing market.

The developers and owners of office space in the Financial District are also the largest

developers and owners of real estate assets in Canada (see Table 3.2) and the largest developers and

ownen of office space in Toronto (see Table 3.6). Cadillac Fainriew and Olympia 8 York, Toronto's two

largest developen, are also the largest developen in the Financial District. Large-scale developments

necessitate joint ventures between developers and major financial institutions. The Toronto-Dominion

Centre is a joint venture between Cadillac Fainriew and the Toronto-Dominion Bank, First Canadian

Place was a joint venture of Olympia & York, the Bank of Montreal. and the North American Life

Assurance Company, and Scotia Plaza was developed jointly by Campeau Corporation and the Bank

of Nova Scotia. Often financial institutions developed their flagship projects using experienced

developers as project managers. For the development of Royal Bank Plaza, the Royal Bank hired Y&R

Properties as a developer for fee, and Sun Life hired Rostland Corporation (headed by the former

president of YBR) to develop its Financial District head office complex. The exception in this list of large

developen is YBR Properties, which was a Toronto-based office developer active in the fringes of the

old office district, which became the Financial District, since the 1920s. The ownership of land enabled

Y&R to develop sizable office structures in mis area. This quite compact area, its designation as the

Financial District in municipal plans, the similar characteristics of office occupants, the distinctiveness

of its buildings, and the specific set of devekpen active in this district makes it a coherent and distinct

office development district.

The battle over the amroval of the Scotia Plaza deve lo~ment

The Scotia Plaza project illustrates difFicuRies of office development in the Financial District. At first

sight, an unanticipated conflict arose between two real estate interests and a municipal govemment

united in its support for a project that breaks the rules of the Central Area Plan. Another look at the

conflict, however, points to a deep-seated structure of the Financial District as an office development

district.

The Bank of Nova Scotia was the last bank among the five large Canadian banks to build a

post-1960 head office building in Toronto's Financial District. The bank insisted on building its new

head office on a site next to the old head office, refusing to move to potential sites that were already

assembled or in the process of being assembled two blocks further south. Fragmented land ownership

of the Scotia Plaza site resulted in a long process of land assembly, which lasted three years, and

involved several direct purchases of buildings and several lease purchases (interview with a former

president of Campeau Corporation).

In 1 981 , a joint venture of the Bank of Nova Scotia and Campeau Corporation to develop a

new head office for the Bank on the northeast corner of Bay and King Streets was announced (Globe &

Mail, March 13, 1981). Carnpeau, an Ottawa-based developer, argued that using the density allowed

by the Central Area Plan combined with the density bonuses available through preserving historic

buildings would not result in an economically feasible project. To achieve an increased density on this

site, Carnpeau proposed exchanging residential density from another site. In 1969, Campeau received

permission to construct a large commercial project on Toronto's waterfront. However, Campeau did not

show any interest in proceeding on this proposal, and as time went by the City became less pleased

with the massive buildings it had agreed to in 1969. Campeau, therefore, approached the City with the

proposal to exchange 500,000 square feet of residentiaf space from King and Bay for 500,000 square

feet of commercial space from its waterfront site (Cdy Planning, December, 1983). Combining the

Scotia Plaza site's perrnitted density with the bonuses accruing from hentage presewation and the

density transfer increased the projecî's density to 15 times the lot coverage (f iancial Post. June 9,

1984). For this purpose, an amendment of the Official Plan and the zoning bylaw were needed.

The situation became more complicated when one of the close-knit members of the Financial

District 'business community', the Toronto-Dominion Bank (TD) announced its opposition to the

proposed plan and zoning amendments. Before the approval of the plan by the land use committee and

the City Council in May 1984, the TD Bank publicized its objection, which was based on the concem for

the C w s planning policy and possible increase in traffic congestion in the downtown area (Globe &

Mail, May 17, 1984). However, it was suggested that the TD Bank opposed the Scotia Plaza project

because of its major stake in the Financial District's office market. The Toronto-Dominion Bank, jointly

with Cadillac Fairview, has developed and owns the Toronto-Dominion-Centre, the largest office

complex in Toronto, which was located on the opposite corner of King and Bay, the site of Scotia

Plaza. In 1984, the fourth tower of the Toronto-Dominion Centre was under construction, and it was

indicated that thc chairman of the Toronto-Dominion Bank was womed that the Scotia Plaza 'Would

represent significant cornpetition for the TD fourth towef (Globe 6 Mail, May 29, 1984). Even the

Toronto Downtown Redevelopment Advisory Council, whose memben represent top employers and

land ownen in the downtown area, decided to support the TD argument to reduce the size of Scotia

Plaza (Globe & Mail, June 22, 1984). It was suggested that the split in the business communtty

occurred because Campeau was an outsider in the City's traditional corporate circles. The 'old guard'

of the Toronto business elite was already jealous of the newcomer because of the 1969 deal that

ailowed Campeau to build a massive development on the waterfront (Globe & Mail. June 28, 1984).

On the other hand, Toronto's mayor at that time was a keen supporter of this project. The

rnayor argued that Toronto's reputation as an international banking centre would get a strong boost

with the commencement of the Scotia Plaza development, and the project would create construction

jobs and tax revenues (Globe & Mail, October 5, 1982; June 27, 1984). The creation of construction

jobs was a pressing problem in 1982. since Toronto. and the whole of Canada. were in the middle of a

relatively strong recession. The mayor also claimed that the development did not violate the City's

Official Plan, but 'ineets its spirit and helps meet its provisions" (Toronto Star, June 29, 1984). Finally,

in June 1984 Toronto City Council approved the Scotia Plaza project (Toronto Star, June 29, 1984). As

a result, Campeau had transferred rights from its waterfront site allowing the density of the Scotia Plaza

to increase from 12 times the lot coverage to 16 times. In retum. Campeau and the Bank agreed to

preserve to old Bank of Nova Scotia Building (completed in 1951), to give the City land for 200 non-

profit housing units, and to provide daycare facilities in Scotia Plaza (Globe & Mail, November 19,

1984). To avoid further delays, Campeau and the Bank agreed to give $2 million to build non-profit

housing in exchange for a Toronto citizen$ group withdrawing its objection at the Ontario Municipal

Board (OMB). It was indicated that Campeau was willing ta put up the rnoney, because a long delay

would have cost much more, and an adverse decision by the OMB could have reduced the size of the

building (Globe 8 Mail, November 19, 1984). In addlion, Carnpeau and the Bank paid $36 million to

buy out the lease the Toronto-Dominion Bank had in an existing building on the Scotia Plaza site.

The Scotia Plaza case illustrates the difficuities of developing in a district crowded with

buildings and a number of interests. It shows that whatever the plans of the municipal govemment, it

cannot afford a constant path. Different circumstances force the municipality to change its 'planned'

route. Pressures not only from developers, but also, at times of business cycle troughs, from labour

and construction interests, force the municipality to re-asses its development policy and often to 'give-

in' to pressures.

Scotia Plaza shows the paradox of oligopoly and competition in the real estate sector. Real

estate companies, together with major tenants and employees typically stand together in order to

promote the office development district, but crucial competition for tenants splits the ranks. However,

the case became more cornplicated because a new player tried to enter the tenitory, and considerable

attempts were made to keep this developer out. Another aspect of redevelopment in a densely

developed area is quite clear: the enorrnous negotiation costs. During the time between the

announcement of the project (March 1981), the approval (June 1984), and occupancy (Spring 1988)

the real estate company had to incur costs that only a major company can sustain.

7.3.2 North York

Similarly to the City of Toronto, the neighboring municipaltty to the north of Toronto, North York, shows

a mix of restrictive and more permissive policies with regards to office development, and the existence

of two very different types of office development districts. In an attempt to develop its City Centre, an

initiative that was supported by Metropolitan Toronto, the municipality promoted office development in

the area identified as Downtown North York and later as North York City Centre. However, North York

also adopted a policy that attempted to restrict office development in industrial areas in order to direct

future office development to designated office development areas like the Ci Centre.

North York's Downtown

The development of Downtown North York exemplifies the role of a municipality as a promoter of office

development. Until the late 1970s, the Metropolitan Borough of Nom York (City of North York between

1979 and 1998) had no visible centre. During the 1970s, the municipality was confronting massive

redevelopment in the Yonge-Sheppard area as a resuit of the extension of the Yonge Subway fmm

Eglinton Avenue in the City of Toronto to Sheppard Avenue in North York (Figure 6.1). The municipality

adopted a policy of encouraging redevelopment along Yonge Street north of the Sheppard subway

station. However, the rate of development had not come up to the City's expectations. In 1976, the

Council directed the Planning Board (later the Planning Department) to review the Yonge Street

comdor and recommend new policies for ths area. The Downtown Plan, which was adopted in 1979,

provided higher development densities in a comdor along Yonge Street north of Highway 401. A strong

majorii of North York City Council supported the policy that development proposals should be

approved promptly and a development depactment was established to publicize and attract investment

(North York, Department of Planning and Development, 1983; Matthew, 1989). A signifiant promoter

of the development of Downtown North York was the municipality's highprofile mayor. Mel Lastrnan,

the North York mayor from the eariy 1970s to the late 1990s (from 1998, he haî been the mayor of the

new City of Toronto), promoted the plan, mastering a strong opposition from ratepayers.

The development of Downtown North York coincided with the deconcentration policy adopted

by the City of Toronto in the mid-1970s and the efforts by the Metropolitan govemment to encourage a

multi-nodal urban structure. Curbing office development in the City of Toronto probably contributed to

the spillover of office construction in North York's Downtown and in other suburban downtowns. In the

Metropolitan Plan, North York City Centre was identified as one of the two 'Major Centres' in Metro (the

other was Scarborough Town Centre) and the plan recommended the continuous growth of this centre

to an employment level of 40,000 perçons making it the largest office node outside downtown Toronto

(Municipality of Metropolitan Toronto, 1989).

The permissive environment in Downtown North York was designed to attract office

development to the emerging centre. The highest densities in North York were allowed in this area;

much lower densities were allowed in the business parks, and the Office Policy introduced in the eady

1980s attempted to discourage office development in industrial areas (North York Official Plan, 1983).

This policy was designed to strengthen the attractiveness of the emerging downtown. This is the place

to mention that the designated district of Downtown North York is adjacent to low-density residential

neighborhoods. Hence, the plan ignited fierce resistance of ratepayers groups who complained that

massive development would change the neighborhoods' character. This resulted in a long battle

between various citiiens' groups and the City of North York over the review of the Downtown plan in

the 1980s, when further intensification was suggested.

The higher densities proposed in the review of the Downtown plan in the 1980s were designed

to attract 'big cRy' development (Toronto Star, January 13,1988). The proactive role of Me City of North

York in developing its Downtown was cemented by accommodating the basic requirements expected

by the development industry. The testimony of the director of North York's long-range planning

department at the OMB hearing illustrates the role played by the City. In his review of the downtown

history, he noted that after building activity practically stalled from 1969 to 1977, increased densities

were introduced by the new Official Plan in 1979. However, these densities were still not enough to

attract substantial development. As a result, the Council approved amendments allowing higher

densities in the 1980s, which eventually spuned the boom in the Yonge Street conidor in the second

part of the 1980s (Toronto Star, January 13,1988).

North York's Downtown is a case of a municipal-led promotion to develop a city centre as a

result of lacking a visible u&an core. By creating a preferential policy. the municipality attempted to

attract development. The real estate companies engaged in office development in North York City

Centre were not the same developers as in farontok Financial District. The involvement of the

govemment was evident in several of the initial office development projects in North York's Downtown.

Different levels of govemment (federal, provincial and local) erected office buildings in the 1970s; these

projects were the core of the upcoming domtown. North Yoik's developen were locally-based, like

Menkes and Penta Stolp (akhough one of the first dice buildings was developed by a foreign

developer). having had previous expenence in residential or industrial development. When office

development was in demand followed by incentives offered by the municipaliity, these real estate

companies began producing office projects. Only in the later phase of development. after the second

half of the 1980s, several large real estate companies showed interest in North Yoik's Downtown.

Olympia & York was involved in an office development in the City Centre, ClBC Development

Corporation and Ontario Hydro, and a Montreal-based developer, Canderel, and a foreign-based life

insurance Company. Prudential, were in the midst of planning two large-scale complexes. In the early

1990s. ten major office buildings were planned for North York City Centre; these included several high-

rise office buildings of more than 25-storeies. The approval by the Ontario Municipal Board in 1992 of

the Downtown or City Centre Plan. which envisioned massive development, came too late for North

York, because by that time the real estate cycle was already beyond its peak, and many of the

proposed developments were put on hold (Toronto Star, November 26, l991, January 14, 1992).

North York's Office Policv

Office development in North YoKs Domtown/City Centre was long preceded by greenfield site office

developments in so-called industrial areas (briefly discussed in section 6.3.4). An eady exarnple of

these practices is illustrated by Olympia 8 York (OBY). In the mid-1960s, Olympia 8 York

Developments, until then a modest-sire Company, was able to acquire a 600-acre site in the

EglintonIDon Mills area in North York (at that time, in the periphery of Toronto). In a period of ten yean,

O&Y built 3 million square feet of o f f ~ e space and a sizeable amount of industrial space (Foster, 1993;

Stewart, 1993; Banco, 1997). Olympia & York was able to create the first large-scale business park by

a single developer. But, office development in industrial areas, some of which were reluctantly

classified as 'office parks' in the 1989 Metro Plan, began to conflict with the attempts to promote office

development in North YoKs DowntownfCity Centre.

Beginning in the early 1970s, the Borough of North York was struggling to formulate an office

development policy. A study sponsored by the Borough in 1973 recommended that most future office

development to be restdcted to defined office development areas. In the early 1980% as part of the

North York comprehensive official plan, the office policy was reviewed. Responding to the emerging

new office policy, lnducon Development Corporation raised several concems regarding the proposed

policy. Inducon, a developer of industrial and office space, was a veteran development Company in

North York. Started in the eariy 1960s as builder of small industrial buildings in North York, it branched

out to own and develop large units of land in North York's business parks and industrial areas. The

ability to make a quick profi by rezoning industrial land to commercial use was one of the most

profitable techniques used by lnducon (see section 7.1.2).

During the review process of the North York Office Policy in the eariy 1980s, lnducon

presented the North York council with a number of wntten submissions raising concems regarding the

proposed policy. The controversial section of the policy that concemed lnducon was the section that

deals with discouraging office development in industrial areas. lnducon suggested that the prohibition

of future office development in industrial areas would have a number of negative effects (North York,

Su bmissions to Council, Amendment No. 261, February 21, 1983):

+ discriminate against office ernployees because they would be forced to drive to downtown Toronto

offices;

downgrade property values, because previously most industrial areas were in reality 'business

force office usen who c m only afford lower rents to locate outside the City Centre and North York

altogether;

hurt North York financially by not getang higher assesment;

downgrade industrial areas and perpetuate rundown districts.

It seems that Inducon's main concem was related to the impact of this policy on its ability to generate

profb from the so-called industrial areas. Until the policy was introduced, most industrial areas were in

fact business parks, gMng equal status to office and industrial uses. The proposed policy, from the

Company's point of view, downgraded these properties to a lesser value by denying the option of office

uses. In fact, it also denied the ability of Inducon to profit from building commercial uses on industrial

lands. For Inducon, the best scenario would have been designating the majority of industrial land as

business parks, especially those where lnducon had stakes.

Inducon's case illustrates the attempt to shape an office development district by a real estate

company. The development company is not nterested in getting approval for a particular project or

some spot rezoning. In this case, the devekper is askng the municipality to create, or at least sanction

and maintain one or a series of office development districts. The guarantee of such a district allows

frictionless operations of the real estate company. As lnducon sensed that there was trouble in North

York, it shifted its interest to other rnunicipalities in the Toronto CMA that were more tolerant of

Inducon's development pracücas. North York was left behind as arena for office development for outer

rnunicipalities, especially Markham and Mississauga.

7.3.3 Mississauga

The City of Mississauga, which is situated outside of the Metropolitan Toronto boundaries, provides

another distinct picture of office development. The role of private developers was more pronounced in

Mississauga than in the case of Toronto and North York. Its City Centre, one of the Toronto CMA's

major suburban downtowns, was initiated by a private land developer and then prornoted by the

municipality. In a second phase of the Crty Centre's history, control of office development and

ownership passed from the monopoly of one company to an oligopoly of another group of companies.

Private developers created almost monopoly positions in some of the largest office parks in

Mississauga. Markborough Properties owned 3000 acres in the Meadowvale Business Park, and

Orlando Corporation owns 600 acres in the Airport area, and it is in the process of developing 1200

acres in the Heartland Business Park (Figure 6.1).

In Mississauga, one of the fastest growing municipalities in the Toronto area, growth was

promoted strongly, especialfy since it becarne a city in 1974. Its prodevelopment mayor since the late

1970s, Hazel McCallion, has advocated development and facilitated a favourable business climate

through cutting bureaucracy and promoting the image of Mississauga as the perfect environment for

businesses (dubbed a 'builder-friendly city', Mississauga News, November 1995). This corporate-

cooperative culture is evident in Mississauga as the municipality makes efforts to accommodate the

requirements of developen, especially through shortening the development process and providing

infrastructure and bus seMces to specific locations. Developen are aware of the positive attitude

toward development at the civic level, and praise this approach. As suggested by one of the prominent

developers in Mississauga, the business rninded council and Me mayor run the city as if they own it

(Mississauga News, August 1 1,1995).

Records for the 1994 and 1997 contributions for municipal elections in Mississauga were

attained (previous records were destroyed since the law requires to keep records only for the two most

recent election campaigns). The Mississauga City Council is made of nine councillors, al1 of whom

received contributions. In total, local (operating primarily in Mississauga) real estate-related companies

accounted for a substantial share of the contributions; each councillor received between 28 and 55

percent of herhis contributions from these corn panies. For example, Hammenon Canada, the largest

land owner in Mississauga, contributed to al1 nine Mississauga City councillon; Kanneff, a prominent

residential developer in Mississauga, to eight councillors, and Orlando, a leading Mississauga-based

industrial and office developer, contributed to seven councillors.

Private develo~ment of a City Centre: The case of Mississauqa

The idea of developing a city centre in Mississauga was initiated by the largest land owner in

Mississauga in the 1960s and 1 WOs, Bruce McLaughlin (his Company was known as S.B. McLaughlin).

McLaughlin refened to this project as 7he first by a private developer to create an entirely new city

centre". However, he acknowledged the importance of the public realm as "govemment and planning

support is necessary because without such cooperation, adequate space cannot be reserved for such

a new city development" (The Telegram, April17,1968).

McLaughlin started assembling land in the 1950s. and by the late 1960s he had 4000 acres in

Mississauga (S.B. McLaughlin Associates Limited, 1969 Annual Repoit: Lorimer, 1978). Except for

pursuing extensive residential development, his ambition was to build the centre of the new Town of

Mississauga. (A number of municipalities were combined in 1967 to fom the Town of Mississauga.) In

the 1960s, McLaughlin envisioned the development of a major urban area west of Toronto, and he

wanted to build the 'City Centre' on a greenfield site where he owned a 200-acre site (Mississauga

News, March 26, 1968).

The pivot of this centre was Square One (previously known as 'Greenfields'), an enormous

regional shopping centre, completed in 1973. In 1970, he also put up his first office building where he

thought the city centre should be. To cernent his site as the new city centre, he persuaded the town

council to trade its old tom hall (which was about two kilometen south of Mclaughlin's proposed city

centre) for a new building in the pmposed city centre (Mississauga News, July 2, 1969). When

McLaughlin appeared before the Mississauga town council to present his plans for the City Centre in

1969, the town council was extremely supportive. One cf the councillon praised McLaughlin saying

"We are indeed fortunate in having a developer such as Mr. McLaughlin in the municipality"

(Mississauga News, February 12, 1969). This notion was repeated thirty years later as the director of

Economic Development for Me City of Mississauga referred to the developen as "key playen in our

[Mississauga's] future" (Mississauga Business Times, March 2000).

In 1973, the pro-development Mississauga town council was defeated, and a shift in attitudes

towards growth occurred at Town Hall. Questions were raised about whether Mississauga should

favour intensive commercial development on McLaughlin's land or on the location of the old town hall.

However, after the 1976 municipal elections, a newly-elected prodevelopment council approved the

plan designating McLaughlin's land as the Mississauga City Centre, despite the near-monopoly land

ownenhip situation (Mississauga News, March 24, 1976; Lorimer, 1978).

The ability of one major developer to determine the location and type of a city centre points to

the essential role of some private developers in the ctty building process. Landownership and a 'vision'

of an entrepreneurial developer were key elements in this process. However, in spite of his monopoly,

McLaughlin needed municipal cooperation to make his scheme a reality. In this case, the local

govemment, and to some extent the provincial govemment, were drawn in by a private developer. The

main role of local and provincial governments was to facilitate the idea that was conceived earlier by

providing the necessary support in terms of land use designation, limiting competition by supporting the

specific location for the City Centre, and acting as an anchor tenants for the future City Centre.

Mississauaa City Centre: The second hase

McLaughlin, as the owner of the site that constitutes the City Centre, enjoyed a monopoly position

regarding development and under these conditions he erected four office buildings between 1970 and

1979. In the late 1970s, another Mississauga-based developer, Shipp Corporation, branched out from

residential development into office development in the City Centre by developing its first building of a

four-building cornplex. The association of developers and life insurance companies as joint venture

partners is evident in a number of developments in the Mississauga City Centre. The partner of Shipp

was Mutuai Lie of Canada; the partner of the Matthews Group was Great West Lie, and lnducon was

a partner of Prudential Assurance (of the U.K.). After Mclaughlin experienced heavy losses and his

debt swelled in the eariy 1980s, a British-based property company, Hammerson, acquired his assets,

and became the largest land owner in the City Centre.

In the Mississauga City Centre, six private developen (excluding the City of Mississauga) are

responsible for the developrnent of almost 90 percent of the office floor-space (Table 7.5). The size of

office space in the Mississauga City Centre is only one-tenth of the Financial District; therefore, the

potential degree of concentration is much higher. The real estate companies that developed office

buildings in the City Centre were either based in the western fringe of the Toronto area (McLaughlin,

Shipp, and Matthews) or were real estate companies that saw an opportunty in office development in

Mississauga (Prudential, Northsted, and Hammerson).

Table 7.5 Top developen of office space in the Mississauga CQ Centre, 1970-92

Real estate company Number of buildings Office space ('000 square feet) Shipp Corporation (1) 4 1,100

S.B. McLaughlin 4 700

Matthews Group (2) 2 550

City of Mississauga 1 450

Prudential8 lnducon 1 280

The Northsted Group 1 1 90

Hammerson 1 1 90

Total seven companies 14 3,460 (70%) (9296)

Total Mississau~a City Centre 20 3,750 - (loosc) (1 00%)

Notes: (1) Joint venture partner: Mutual Life. (2) Joint venture partner: Great-West Life. Source: A compilation of sources presented in section 2.3.

The City Centre is chaiacterized by a significant number of mid-rise office buildings (1 1-16 stories). It is

designated as the primary office centre in the Mississauga Official Plan, and it is planned to contain the

highest density and the greatest concentration of office development in the City of Mississauga. In

terms of employment, two thirds of office employrnent in the City Centre is in finance, insurance, real

estate and business seMces (Ci of Mississauga, 1998).

The cohesiveness of the Mississauga City Centre is manifested by the 'united' front of real

estate companies against cornpetition from outside developen. In 1988, the president of Hammerson

called the ctty council to reaffirm its mmitment to the City Centre as Mississauga's 'downtown'. He

complained that outside forces are trying to shih the core away from the City Centre (Mississauga

News, February 24, 1988). He was referring to the pmposal of the developen of the West Edmonton

Mall (the Ghenezian brothen) to build a huge retail compiex near the airport (Globe & Mail,

September 9, 1986). This shopping maIl would have competed with the Square One shopping centre

located in the Mississauga City Centre. The objection by the Mississauga City Centre interests resulted

in the rejection of this project (interview with a former president of Hammerson Canada).

The plea to reaffirm the municipal commitment to the Ctty Centre was followed by a promotion

campaign conducted by the City Centre Marketing Group. This initiative was proposed initially to a core

group of developen, which were the most active in Mississauga. These developen were Shipp,

Hammerson Canada, Inducon, and the Matthews Group, al1 with shopping centre and office building

interests in the City Centre. Fclkwing their positive reaction, invitations were extended to other

developers (Mississauga Business Report Magazine, June 1989). This campaign brought together the

City and most of the brgest real estate development companies in Mississauga. The aim of this

initiative was to attract corporate office tenants and to give a strong boost to the development of the

City Centre (Real Estate News, November 25, 1988). One result of this campaign was the launching of

a shuttle bus service within the Cv Centre. In this endeavor, the developers own the buses but the

provincial and the municipal govemments cover the operating costs (Mississauga News, February 18,

1 990).

Following the 1990s real estate recession, this marketing alliance became more onented

toward attracting tenants and leasing office and retail space in the City Centre area rather than

promoting new commercial real estate development (Mississauga Econornic Development Office,

1999). In addition, office and retail development in Mississauga business parks has enjoyed

unprecedented growth during the 1980s and to a lesser extent in the late 1990s, and a shift of office

development away from the City Centre was evident. In this light, Hammerson, as the major land and

property owner in this district, needed to enhance the attract~eness of the City Centre, and, as a result,

confronted and opposed to rezoning of land in business parks for retail development. In the 1990s, the

City Centre stagnated as no office development was commenced; at the same time, especially after the

mid-1990sl a large number of office buildings were constructed in office paiks in Mississauga. One

such office park is the Heartland Business Park, which is discussed in the following paragraphs.

Heartland Business Park: Orlando's territow

Orlando Corporation is a real estate Company engaged in industrial, retail and office development.

Orlando is a rnodei of a suburban real estate company, developing commercial properties mainly in

Mississauga. One of the Company's comparative advantages is its vast land bank. Its first large-scale

real estate development was launched with the purchase of a large piece of land (600 acres) near the

Toronto International Airport in the 1960s. Later developments in the Airport area in the 1980s and

1990s were based on the ownership of large pieces of land. In the mid-to-late 1980s, Oilando

assembled another 1200 acres in the heart of Mississauga to create Canada's biggest business park.

the 'Heartland Business Community'. The most recent stage in Orlando's strategy of purchasing large

land banks and developing entire business parks was announced in mid-2000. O h d o assembled a

500-acre site in the City of Brampton, notth of Mississauga, adjacent to the newest expressway in the

Toronto area, Highway 407. The company plans groundbreaking within the next three to five years

(Mississauga Business m e s , June 2000).

One of the reasons for retaining its presence in Mississauga (except for functional reasons,

such as location, accessibility and growth) is the good relationship the Company has with the pro-

development mayor and the City Council. This relationship is based on a long history of cooperation.

The municipal bureaucracy is considered very efficient, a crucial factor in real estate development.

where the tirne element is very important. Also, since Orlando's land assets include mainly greenfield

sites, its development schemes usuaily do not involve lengthy processes of approval and the Company

tries to avoid any encounter with the Ontario Municipal Board (interview with an Orlando executive).

Orlando's Heartland Business Park in Mississauga is located West of the airport adjacent to a

well-developed network of expressways (Figure 6.1). In 1986, Orlando purchased 800 acres of land

followed by two more deals for an adjoining 400 acres in 1987 to create Heartland (Canadian Building,

March 1989). By 1999, approximately 1 1 million square feet of industrial, office and retail space were

constructed in the Heartland Business Park. When fully developed, Heartland would have 30 million

square feet of space and 30,000 employees (Orlando Report, 1999).

Heartland f is perfectly into Orlando's philosophy. lt is a 'total environment' business park built

by a 'total package' real estate company. Odando is a fully integrated company which provides a total

product tailored for the clients' specifications. Orlando picks a site. builds the roads, designs and

constructs the building, and leases, and manages the building. It is able to provide a building in an

environment which is controlled totally by the Company. The abil i i to conrtnict an entire environment

is illustrated by Street naming in Heartland. As pointed out by John Bentley Mays in an article in the

Globe & Mail, streets in Heartland with names such as Avebury, Venice, and Rodeo Drive have nothing

to do with any local fact or history and "the street-names appeared to be picked for general effect. as

contributors to the scenography of this vast place" (Globe & Mail, August 5, 1992).

Once Orlando has the zoning (in ternis of type of development and density) in place, the

developer is able to build the type of building helshe prefers and thus often disenfranchises, to some

extent, the power of the municipality to influence development. The construction of retail 'powef

centres' ('big box' warehouse retailers) in HeaRland illuminates this argument. In 1994, Mississauga's

mayor complained: When I supported retailcommercial there [Hearthnq it was because we thought

we are getting a maIl for the industrial area, 1 never dreamed 1 would be a power centre". However, she

stressed that the f im [Orlando] %as done nothing wrongn (Mississauga News, October 19, 1994). A

report prepared by the City reaffinns this argument. It indicated that the uses confonn to the Officiai

Plan and the zoning bylaw, which did not specify that the retail units had to be in an enclosed structure

(Mississauga News, February 12, 1995). It is doubtful if this flexibility would be allowed in an

environment which is immediately sunounded by residential or mixed-use properties. However, even in

the case of a large-scale greenfield development such as Heaiaand, conflict might be building at its

fringes. Since this retail complex borders residential areas. ratepayen in the adjacent areas

complained about the loading activities at these warehouses and are wom'ed about traffic created by

this type of development (Mississauga News, October 19, 1994).

Orlando's strategy conflicts with the interests of the oligopolistic ownen of the City Centre.

There are many indications of conflicts coming out into the open. But the conflict is not just between

owners of properties, the conflict is also between two very different office development districts.

Orlando builds smai to medium-size customized office buildings in settings it has full control over. The

relatively sudden uptum in demand by 'high-tech' companies for office space could be met almost

instantaneously by Orlando. On the other hand, the City Centre group of developen specializes in

large buildings in more complex settings. The City Centre has developed from a greenfield site into a

very different and complicated office development district over the last thirty years. The users'

characteristics and land costs play a major role in the success of Heartland and the relative decline of

the City Centre. The ability to merge office uses with spaces for storage and distribution is possible in

Heartland where large tracts of land are available at far less cost than in the City Centre. Alsol these

kinds of storage facilities cannot be accommodated in the City Centre, and it is difficult to promise easy

access by car and ground level parking.

Despite its total conbol over the devekpment of Heartland, Orlando has to depend on

govemment cooperation to make this business park an unintempted success story. When it comes to

rezoning, the role of the municipality is essential. In 1996, Oilando submitted an application to rezone

180 acres of land in Hearthnd from industrial to residential use. At this point the City had the upper

hand since it has the authonty to approve rezoning. As a nsuit of the City's opposition, the Company

rnodified its proposal. Additional opposition arose when Orlando applied for additional rezoning . This

time the ownen of major shopping centres in Mississauga who already incurred loses from its big box

success were detemined to prevent further expansion of retail activities in Heartland (Mississauga

Business Times, June, 1996; October. 1 996; March 1 997).

The role of various levels of govemment is particularly important when it cornes to investrnent

in transportation facilities. The prime advantage of Heartland is its accessibility. It is located on the

major east-west highway of Southem Ontario, Highway 401, on Mississauga's main Street, Hurontario

(Highway 10) adjacent to Toronto's international airport. To keep Heartland's edge, a continuous flow

of investments in transportation infrastructure has to be made. This is where the role of govemments

becomes extremely significant. One recent example in the case of Heartiand was a partnership

between three Ievels of govemment in building a new interchange connecting Heartland and Highway

401 (opened in late 1999). The Ontario Ministry of Transportation, the Region of Peel (the regional

govemment) and the Crty of Mississauga joined forces in this project. Orlando, the owner of the

Heartland Business Cornmuntty 'donated' $3 million worth of land, while the total cost of the project

was more than $16 million (City Business, Winter 2000). Prior to the completion of this project, the local

public transit department, Mississauga Transit, has maintained regular bus routes through the area,

and an express service directly to the Toronto subway system (Mississauga Business k e s , November 1998). These transportation irnprovements and facilities are backed by public finance to

rnaintain or even increase the accessibility of the Heartland Business Park.

Orlando, as a major real estate developer in Mississauga, f is well into the businessoriented

municipality. On the one hand, it is able to create its controlled environments. This way it minimkes

conflicts over land use issues. On the other hand, Oriando engages in a continual dialogue wïth the

municipality to create the necessary conditions that its pmperties will continue to be profitable in the

long tem. However, there is conflict with other real estate companies which compete for customers

and tenants.

7.4 Uneven Surfaces of Office Development The segmentation and differentiation of real estate markets encourage a more refined approach to

analyze real estate development than focusing on the downtown-suburban dichotomy. The uneven

development of offices at the metropolitan level is expressed in a series of relatively small and distinct

districts. In these office development districts municipal interests merge with those of selected groups

of developers and also with emerging physical characteristics The physical characteristics such as

size, height and density of buildings combined with specific transportation modes solidify the

cohesiveness of these districts. Interactions and arrangements between developers and govemments

Vary betwaen municipalities and districts, and consequentty produce specific types of districts.

Research on Toronto indicates a range of o f f i development districts situated in different physical and

municipal settings. These districts include two principal types: centres with a relatively high building

density and low-density office parks.

In centers, an oligopolistic pattern of building ownenhip tends to prevail as groups of specific

real estate companies and other ownen hold a substantial part of office floor-space. These oligopolies

result in competition and cooperation between different developen and ownen. These groups compete

in attracting tenants to their specific buildings but also come together in order to maintain the viability

and the competitiveness of these districts, and they cooperate in order to keep outsiders away.

Development involves intricate negotiations with different interest groups. In these districts bargaining

with local govemments is especially important, since land is expensive and changes in existing zoning

and densities may result in substantial financial gains.

However, there are some differences between these centers. Office development in downtown

or the Financial Distrid is redevelopment of an existing fabric; in suburban downtowns it has been

prirnarily greenfield development. Generally, redevelopment sites require sizeable financial resources.

Consequentiy, the largest reaf estate companies and banks control office development and ownership

in the Financial District. In the City of Toronto, since growth was extensive throughout most of the

penod under investigation, the municipality was able to set restrictive development policies and extract

some benefits from allowing real estate companies to develop at higher densities. In other centres

(suburban downtowns) a different set of real estate companies has been at work. Life insurance

companies joined an oligopoly of smaller and local real estate companies in some cases. In the

suburban centres, local govemments have attempted to attract real estate companies to engage in

development by offenng various incentives. It could be argued that in the case of the North York City

Centre the municipality was in search for a team of developen.

The other type of district, 'office paik' includes a wide range of districts; their emergence and

development is waiting to be more clearly understood. Nevertheless, findings indicate a number of

characteristics. Unlike centres, either downtown or suburban downtowns, office development in office

parks was initially lest controlled by municipalities. These districts developed from areas that were

usually designated as industrial districts, and only in later stages was the importance of office uses

acknowledged, and some were oficially designated as 'office' or business parks, or 'employrnent

areas'. Specialized real estate companies, primarily local, who were familiar with specific suburban

settings, have used this ambigu@ to exploit opportunities and develop office buildings in industrial

areas. As a result of development on greenfield sites and the relatively inexpensive land values, sorne

real estate companies were able to assemble large units of undeveloped land and to establish

prominent positions in particular districts. Developen have been able to determine development in

districts in which they exercise a near monopoly. In these areas, once zoning byhws are in place, the

role of the municipaiii diminishes (its role is important in servicing the land or in case of rezoning), and

the flexibility of the developer is enormous. Unlike the case with downtown sites, where development

densities are open for negotiation and revision, development on suburban sites is normally less about

higher densities since the typical suburban-type development is low-to-medium density. The major

obstacle for development, land use conflicts resulting from proximity to other properties, is reduced,

and the development of these areas becomes relatiely quick and easy.

In the case of office development districts, political connections are important. These

connections take different foms in different districts (more direct relations in suburban downtowns and

office parks and connections mediated by lawyers in downtown), but still, negotiations are based on

some understanding of what makes development possible.

Office developrnent districts show that there are limits to spatial flexibility within the Toronto

region. Each district encompasses specific characteristics based on its physical and political features;

these particular circumstances 'anchor' real estate companies to districts that best fit their capabilities

and their requirements.

CONCLUSIONS

SPATlAL FIX AND SPATiAL SWlTCHlNG OF

REAL ESTATE CAPITAL

In capitalist economies buil structures embody two contradictory features. Buildings are fixed in space

and their physical shift is close to impossible; these buildings represent considerable amounts of sunk

capital. However, the value embodied in buildings is transferable, and the owners of these structures

may consider them as tradable commodles. Scnitinizing this apparent paradox is the core of this

study.

One way to conceptualize and analyze the functioning of the activtty responsible for the

production and trading of these structures, in this case office buildings, is through f i ie major

propositions. These propositions were examined and substantiated in the chapters reviewing the

literature on real estate and office development. and by the findings and evidence assembled on office

development in Toronto and also on the scale of the Canadian urban system.

The first proposition indicated that beyond Haivey's conceptualization of capital switching between

circuits of capital accumulation, there is an intemal logic to investment in the real estate sector. Building

upon Haila's (1991) notion of the 'intrinsic dynamic of the real estate sector', I constructed a framework

that combines structural elements with insights into the practices of the real estate companies. This

framework was introduced to study the practices of real estate capital. This in tum resulted in the

conceptualization of the 'three dimensions of capital switching'. Although the idea of capital switching

was used to scrutinize switching between the pnrnary and the secondary circuits at the macro-

economic scale, I used this framework to analyze the practices of real estate companies at the level of

the individual Company. Capital is neither faceless nor hornogenous; it has identity that is fumished

through the fractions it consists of. The actions of agents representing these fractions are shaped by

macro-economic conditions; however, their own goals, insights, expectations and practices are an

essential part of the notion of switching. The framework of the three dimensions of capital switching

offers a way to conceptualize and analyze office development. It incorporates several sets of variables

that have a major role in shaping the operation of the real estate sector. The dynamism of real estate

capital, which results in a constant search for more profitable outlets, necessitates an analytical

framework that is able to accommodate these sets of variables. The focus of the empirical work in this

study was on the practices of large Canadian real estate companies in the period stretching over

several decades (1 950s to 1990s).

According to this canceptualization, real estate capital considers three core components when

it comes to switching practices; these include operational modes, products and locations. First, real

estate companies can either engage in the development of new office buildings (or altemativeiy

undertake major renovations and re-use existing buildings) or merely engage in trading of existing

properties. There are some properties that are more valuable than others for real estate companies,

these are considered by the companies as %ore assets'. These properties usualiy consist of the largest

office complexes located in downtown areas of the major cities within the urban system. Core assets

provide a stable incame stream of rents and as a resutt of their size are able to create their own

microenvironment. Other assets, which are older, smaller, and not as centraliy located, are held as

'bargaining chips' that can be bought and sold depending on the position of the market for office

properties. Typically, real estate companies start as entrepreneurial firms which are engaged in

development and the subsequent sale of properties. This type of companies lack sufficient capital, and

hence tend to obtain the development gain and seIl the completed propeilies. In later stages of the

corporate Me cycle, real estate companies are able to retain some of their projects. In these phases

real estate companies become traders while striving to keep their core assets intact.

Second, real estate companies switch investment between different pmperty types by re-

deploying capital between residential and commercial properties or between distinct products within the

commercial component (between retail properties and office buildings, for instance). Unfavourable

conditions in the residential component (as a m u t of govemment legislation and econornic recession)

and favourabie conditions in the commercial component, especially in the 1970s in Canada,

contnbuted to the shifting of investment from residential to commercial properties. Within the

commercial cornponent, switching is possible as some elements are considered by the real estate

companies as having favourable growth prospects than othen, as evidenced by the switching between

office and retail properties. Finally, real estate companies shift capital between different spatial scales

and between different locations (this aspect will discussed in detail in the following paragraphs).

In investigating capital switching, the time frame is crucial. Evidence of the existence of the

three dimensions of capital switching is visible at the scale of several decades, and it is also observable

in the everyday practices of real estate companies. Companies employ different investment strategies

in the long-terni, but they are also faced with various possibilities as embodied in the three dimensions

of capital switching at any particular point in tirne. However, processes that encompass longer time

frames, that is over f i years, were not studied here.

In addition, I have suggested that investment in office development or real estate properties is

not the final destination of capital (not the 'last-ditch' as maintained by Harvey). The notion of a one-

way Stream from the primary to the secondary circuit, as advocated by Harvey, has to be expanded to

reciprocal relations between the real estate sector and the wider economy. Some indications based on

the study of the Canadian case suggest that capital is not frozen as real estate capital once it enten

the secondary circuit. Rather, it might seek alternative investrnent channels as conditions in the real

estate sector change. Neither Harvey nor Haila are right or wrong. Diierent time scales, different

questions and different methods determine different outcomes. Naturalty, Harvey's overreaching theory

of caplalism over the last century and a half does not focus solely on real estate. On the other hand,

Haila's notion of the intrinsic dynarnic is an attempt to build a frarnework around real estate intemal

behaviour. Both framewoiks contribute to the understanding of the woikings of real estate investment.

The second proposition questioned the spatial character of real estate capital. The starting point in this

study was the observation that different real estate companies have different operational spaces within

the Toronto metmpolitan area. This observation lad to a focus on Canadian real estate companies as

they engage in dual spatial practices of capital investment, geographical fix. and spatial switching.

Strategies of spatial fix and spatial switching can be employed simultaneously at different spatial scales

and in different locations across the same scale. This study observed limited and specifc spatial

switching of capital as shifting investments at the national scale have reinforced the poslion of selected

urban centres within the urban hierarchy. However, when taking into consideration that non-local real

estate companies control only the lesser part of the urban office stock (in Toronto, the ten largest

owners of office space controlled about 32 percent of the total office stock in 1999). the role of local

developers is undertined. At the metropolitan d e , practices of real estate companies involving spatial

fix seem to be the rule. Also, distinct office development districts, which contain specific physical

features, municipal modis operandi and different demand, give rise to a spatial division of labour

arnong office developers. At the level of the office development district, ownenhip concentration was

clearly visible.

This study indicates the clear spatial preferences of real estate capital. At the national scale.

selected urban centres in Canada, not necessanly al1 the largest cities, are prefened by the large real

estate companies. Certain cities within the top tier of the urban systern, mainly Toronto and Calgary,

were preferred by these companies as places for investment in office buildings over most of the time

period studied. Calgary's outstanding growth in the 1970s and early 1980s established its position as a

prime investment arena. Once a critical mass of investment was reached, it has sustained Calgary's

position, although its growth was less spectacular in the 1980s and 1990s. The large Canadian real

estate companies favour other large cities less, like Montreal or Vancouver. Once a location is chosen,

it is not easily abandoned. In this context, assets that are considered by companies as core assets play

a major role in perpetuating spatial fix. The uniqueness of these assets makes them practically non-

tradable, cementing the nexus between specific real estate companies and specific places.

Related to the previous proposition, the existence and importance of different office building cycles at

different spatial scales and in different locations was suggested. The comparison of national, selected

provincial and two metropolitan scales indicates the existence of building cycles that both converge and

diverge over scales and within different scales. For instance, at the metmpolitan scale, office-building

cycles of Toronto and Calgary have converged in the late 1970s and earfy 1980s, and diverged

throughout the 1980s, converging again in the 1990s. Real estate companies take advantage of

different building cycles by attempting to shift or lock in capital spatially. Their switching practices were

not limited only to spatial switching, but also to operational and product shift Development was

preferred during boom periods, whereas trading was the prominent feature in real estate downtum

times. Preference was given to commercial develcpment, especially office development in the 1980s,

as several large real estate companies disposed of their land and residential portfolios and focused on

office development.

The fourth proposition argued that local knowledge and the reliance on local conditions and networks

limit most real estate companies to specific locations. Real estate companies tend to work within well-

defined boundaries at the metropolitan level. A configuration which 1 cal1 'office development districts'

rationalizes the spatial differentiation of office development within the metropolitan region. In this

context, the structure of relationships between local municipalities and real estate companies within

defined environments is important. In these environments real estate companies carve out their own

territories. This process is influenced by the prevailing municipal agenda. Real estate capital does not

work in a vacuum, but it is positioned in highly specific environments, which have their own features,

rules and conditions. In these environments, some spatially bound social relationships create distinct

playing fields. In the case of Toronto, different political agendas prornoted by the City of Toronto and by

suburban municipalities combined with the interests of metropolitan or regional govemments enhanced

he fragmentation of development agendas. This has further fragmented operational spaces for real

estate companies and has enabled developen to take advantage of differentiated conditions within the

metropolitan region.

In the Toronto area, the large real estate cornpanies are generally more interested in

downtown areas, and less in the suburbs; suburban areas are the territories of local developers. This

dichotomy is based on the structural differences in capital assets and experience with cornplex

negotiations. Large companies can marshall the large financial resources that are essential for

downtown developmenVredevelopment. In the case of Toronto, a spatial division of labour among

developen is strongly supported by the findings of this investigation. There are developers with

operational fields focused on downtown and the traditional devekpment axes, whereas suburban

developen completely ignore these areas prefemng to concentrate their development operations in

different suburban environrnents. It was also proposed that the existence of office development

districts, which is reinforced by distinct physical features, municipal regulation and the practices of reaI

estate companies, contribute to the spatial specificity of office development.

One of the interesting and in my opinion, very contentious issues in research on real estate

development is the question of the global and the local. The global literature on real estate

development includes many assertions on the role of global expertise and capital. Research on Toronto

and Canadian real estate companies engaged in office development (and in the swapping of office

buildings) reveals a very strong local constraint both at the scale of the national urban system and at

the scale of the metropolitan area. The tension between the global and the local can be related to the

inherent dualrty or paradox of real estate, namely the fixity of its physical form and its tradability in its

money form.

There are global and national forces that shape real estate development: demand (as

reflected, for instance, by structural changes in the economy), trade and labour relations, and national

fiscal and monetary policies. There are global trends in architecture, building technology and taste. On

the other hand, creating an office building requires a specific site surrounded by other specific sites in a

specific political junsdiction, which generally has a very nanow spatial reach. This reach may be

variable, but small municipalities are still crucial in regulating land use and as a result in the erection of

buildings. There may be exceptions, such as London and Pans, in which upper level govemments were

involved in the regulation of urban development; there may be pressure to give in to 'global forces'.

However, municipalities are legal, political and social entities that have persisted at least over the

period of the last haff a century. The locality is a structural imperative, a necessity, but each

municipality is different and consists of particular sets of agents and conditions arranged in specific

configurations. In this frarnework, local govemments have considerable leeway to maneuver and as a

result may produce different office development trajectories.

At the local level, municipal jurisddictions are abk to exercise their powen, and to some extent,

function as 'miniature empires'. Municipalities, that apparently share similar qualities, compete for

investment; however, the ability of some municipalities to attract development, while other

municipalities have relatively small-scale investment suggests that beyond structural shifts, some local

factors have an impact of the decision of companies and investon to prefer some places over othen.

Some municipalities do not compete, not because they lack features that attract capital, but rather

because they may reject the notion of growth.

Drawing on Cor and Mair's concept of local dependence (1 988). municipalities and developen

are engaged in reciprocal relations that are spatially immobile; as a result. the maintenance of

functioning relationships becomes a prime goal of both municipalities and developen. These

relationships, based on values like mutual trust and cooperation, could not be easily reproduced

elsewhere. Production is embedded in a social context that is situated, in tum, within a particular

geographical setting (Rast, 1999). For municipalities, previous experience with specific developen that

often involves social relations extending beyond strictly business-based relations encourages the

continuous preference of the developen with whom the municipality had past experience. For

developers, building new social and political networks is an expensive and a timeconsuming process.

Hence, the idea of spatial fix of real estate development as dependent on particular territories may be

defined by political jurisdictions.

The paradox between the necessary and the contingent as far as real estate is concemed

encompasses issues that were addressed in this study. It can be argued that real estate development

is based strictly on necessary conditions. According to real estate professionals, if the Yundamentals'

are not in place, no development is likely to occur. Fundarnentals are primarily economic indicators,

such as rental rates and the cost to develop a project. For instance, employment growth in the finance

and the business sectors creates demand for office space and resuits in the increase of rental rates. If

development is profitable, based on a given costheturn ratio, office space would be produced.

However. even when these fundamentals are in place, development would not necessarily happen and

also it would not happen everywhere. Demand for office space does not necessarily mean office

development, since there are spatially mediating factors. On the national scale, or the metropolitan

realm, there are spaces that are preferred and others that are overlooked by developers and investors.

In this case, the role of the local rnay be vital. Local in this context is not necessarily contingent since

differentiated conditions across space are part of the structural conditions. Contingent factors may

include the practices of agents that practically implement the real estate development process. The

interpretation of the market depends on the indMduals invohred; their perceptions of the future and

their capability to cany development out are not less impoitant than necessaiy conditions.

In the North Arnerican context of uhan development, both the municipality and the developer

are to a large extent regarded as essential components to generate development. One cannot function

without the other; however, empirical investigations suggest that variable local conditions are important

in this equation. Discussion on real estate development has ample references to the role of the local

scale. As suggested by Leitner (1994), location remains an important factor influencing real estate

development and Pryke's (1994b) notion on the 'paiticulanty of place' emphasizes the role of space in

the process of propeity investment. Hence, an altemative approach is to acknowledge that

development is shaped both by both the necessary and the contingent. The property development

process consists of a series of strudured networks and relationships between a variety of capitals;

within this framework, there is a role for national and local govemments and for locally based

specialized developen. The network of relations between the agents invohred produces contingent

outcomes which are inevitably shaped by structural conditions.

The fifth and final proposition focused on the crucial role of finance capital in facillating office

development. The Canadian study suggests close links and relationships between real estate

companies and financial institutions. Specific connections were established between developen and

financiers. some of which resulted in long-terni relationships. These long-term relationships facilitate

the continuous process of real estate production, as capital can be obtained for different types of

developrnents and various locations. As a result of the Canadian financial system being national in

scope, these relationships can be maintained across Canada and even beyond. Financial institutions

are not just 'silent partnen' of real estate companies, but they are also active in real estate

development, primarily as investon and occasionally as devekpeis. The traditional role of financial

institutions as financial intermediaries that supply funds for development was challenged in the 1980s,

as some, principally life insurance companies, became office developers at least for a limited time

period.

The hypennobility of capital, traveling at the speed of light, and the idea that contemporary

capitalism is dominated by 'spaces of flows' rather than 'spaces of places' (Castells, 1996, 1997) is

largely resisted by real estate capital. Arguments claiming that the real estate sector has increasingly

acquired global characteristics have failed to provide substantial empirical evidence. Except in a few

cases of outstanding real estate companies, and the intemationalization of real estate services and

architectural fimis, evidence for intemational flows of real estate capital at a substantial magnitude is

absent from ernpirical investigations and from this study. This study argues Ulat there are considerable

obstacles to the free movement of capital in the sphere of office development. In the discourse on

urban developrnent, some limitations to the free movement of capital are acknowledged, while other

conditions are perceived to facilitate the tlexibility of real estate capital. As noted recently by Harvey,

capital is highly seledive when it comas to places (Harvey, 2000, p. 33): 70 begin with, the gkbe never has been a ievel playing field upon which capital accumulation could play out its

destiny. It was and continues to be an intensely variegated surface, ecokgically, pol i i l ly , socially, and culturally

differentiated. Flows of capital wouM found some terrains easier to occupy than omets in different phases of

developmenr.

Many financial fims that provide financing for real estate development rely heavily on place-specific

investments and clients. As a result, finance capital is not spatially flexible; most financial institutions

adopt conservative approaches, especially life insurance companies, and hence prefer to invest in the

places that generate a substantial pait of their real estate investrnent (their core assets). This in tum

reinforces the importance of the more stable markets, which are typically the larger urban areas. In

Canada, the investrnent in office buildings by large financial institutions for the purpose of income

production has been Iirnited primarily to large cities (particularly Toronto) and to medium to large

buildings. Canadian financial institutions, which have national scope, have been strongly engaged in

office investment and development in downtown areas, while subuiban locations, aithough not ignored

by these companies, have been far less important places of investment.

In current research, the sources of real estate financing are left grossiy simplified. In terrns of

conceptualizations, further exploration of capital flows within the real estate sector and between the

real estate and other sectors is a much-needed avenue of research. The intrinsic dynamic of the real

estate sector is acknowledged in this research. However, it raises the question of the spatial lirnits of

capital flows within this sector. The detenination of these limits deserves more research. This study

was able to identify the existence of these lirnits, but further research should examine the reasons for

these limits, and how these limits are shaped over time.

Barriers to capital switching across international borders reinforce the role of domestic capital

in real estate development. Aithough I had no opportunity to investigate this issue systematically,

newspaper articles and interviews with the exec~iives of financial institutions suggest that the financing

of real estate has definite spatial limits. In the case of Me insurance companies, for example, eariy

bamers imposed by govemment regulation and more recently the conservative policies of boards of

directon (the idea of 'prudent p o l i , which was also adopted by legislation) have restricted capital

flows into real estate properties, and most likely across international and even provincial bordes.

Cunency exchange rates associated with capital flows across borden make trans-border real

estate investrnent risky. In addition, when examining the total invested assets of Me insurance

companies, it becomes evident that they do not need to transfer capital from abroad to finance real

estate development. The risk invohred in importing capital, and the fact that real estate constitutes only

a fraction of the assets of life insurance companies, supports the argument that in most cases

international money is not needed for real estate development.

Finally, the interconneMi between capital flows, in which real estate capital foms oniy a

fraction, should be addressed in future research. Real estate development is neither stnctly dependent

on the prirnary circuit of capital, nor is it an independent activity; it is also related to broad social and

economic processes that make office development a desirable or an ill-fated investment. Building

cycles provide us with the general patterns of macroeconomic conditions, but they fall short in providing

connections between supply, demand, govemment mie, and local conditions. In Canada, in each

decade over the last f i years, a number of factors were responsible for the development of office

buildings. Development in the 1950s was unleashed as a resutt of the govemment lifting restrictions on

building materials for commerciai development. In the 1960s. aftei the large real estate companies

were fomed, demand was strong, and large-scale projects were possible. In the 1970s. the continued

growth of the economy resulted in fuither development. The 1980s were characterized by abundant

supply of capital seeking outlets and even after it was clear that office development at the extent it was

delivered was not needed, available capital was too tempting for both developers and financiers. The

1990s decade was the era of 'prudence' and 'discipline' enforced by tight lending and the careful

scrutiny of office development. In the late 1990s and early 2000. this trend has been reinforced by a

slow stock market for the shares of real estate companies, and subsequently a flow of capital into 'high-

tech' stocks, which has been partially diverted capital from entering or staying in the reai estate sector.

Although real estate companies have posted soaring eamings in the last couple of years, the value of

their stocks has plunged, and currently the market value of companies is severely undenralued. The

lack of interest of the stock market in real estate shares strengthens the notion that the real estate

sector is intertwined with the broader economy. As a result, real estate companies have adopted

conservative strategies (these were 'imposed' by the financial institutions) with regard to office

developrnent.

The future of office development

Are bricks and mortar obsolete at the dawn of the new millennium? Wiff cyberspace eliminate the need

for additional office development? Or will fi change the kinds of office space in the twenty-fint century?

Since these questions deal with the future, answenng them might be 'premature'. However, some

indicators of future trends are visible.

Throughout most of the 1990s, with almost no major office development taking place, the

construction of new office buildings seemed to be the furthest away from the mind of real estate

developen. Office development seems to be a thing of the past. A widely acknowledged impression

was that the Swan Song of sizeable office development was inscribed in the buildings completed in the

last great building boom of the 1980s. The mernoiy of the eady 1990s meltdawn of the real estate

market with record-high vacancy rates and low rental rates was still fresh, and besides, in the electronic

aga, bricks and mortar seem to be rephced by cybenpace (dubbed 'bricks and clicks').

In the late 1990s, however, and more specif'ically at the dawn of the twenty-fint century, office

buildings are still in demand. In his address to the shareholden of O&Y Properties Corp. in the 2000

annual meeting, Philip Reichmann, the chief executive officer. contended that contrary to many

futurists, demand for office space is rising, not falling:

'People used to think technology wouid mean the end of office space. People would be working from home. This

is not the case at all.. .The office building is îhe factory of the information age' (Toronto Star, June 29, 2000).

There is evidence to support this argument. In the United States, recent growth in office supply and

demand has been much greater than expected. In 1999, office completions were expected to be more

than triple the level recorded two yean earfier (Urban Land, January 2000). In Canada, it is expected

that in the year 2000, developen will build more than double the amount of office space they added in

1999 to meet the demand not seen in 13 yean (Globe & Mail, May 3.2000). However, development,

ownership and financing of office buildings may not be the same as it was in the 1950 to the 1990

period. The structure of demand has been changing dramatically as new types of spaces are created

and new office development arenas or office development districts are emerging. As a result, the type

of agents involved in development and ownership. and the form of office buildings might be somewhat

different.

In the second half of the 1990s, after the severe real estate slump, office development became

a more 'disciplined' business. (The term 'discipline' is used in the real estate milieu, both in newspaper

articles and in the intenriews I conducted.) Discipline means that financial institutions scrutinize office

developments more carefully, demanding substantial pre-leasing before providing financing. Therefore,

office developers are more careful in launching development projects. Currently, in the Toronto area

there are very few speculative office buildings under development; most of the buildings under

construction are largely pre-leased or are design-built for single tenants. This means that no major

office towers are being erected in the downtown area or in the suburban downtowns (recently, a few

office projects have re-emerged and they have been frequently discussed by the media). Almost all

suburban office buildings under construction in the late 1990s and in 2000 are buitt for specific single-

tenant occupancy.

Other trends might explain why speculative multisccupancy office buildings are not being built.

First, older buildings are being re-used and converted from commerciaCindustrial loft buildings to office

buildings and older office buildings are being renovated and upgraded. These buildings are located on

the periphery of h e downtown area, in the case of Toronto west or east of the Financial District. Unlike

the conventional office buildings, these buildings are being redeveloped or refurbished by a new kind of

small developer that has emerged in the last decade. The re-use of buildings is even seen in the

suburbs, although involving far fewer buildings in comparison to the Clty of Toronto. In the late 1990s.

Nortel Networks, one of Canada's leading communications companies, renovated a large factory to

create a one million square feet office complex in Brampton and turned it to the Company's

headquarters. This complex is a self-contained environment enclosed in a 'groundscarper'. Also, some

of Toronto's bank back offices use large converted industrial spaces in the suburbs. Another feature of

current office development is the use of 'hybrid' of 'flexible' buildings. The fact that some buildings do

not reveal their function from the outside is due to flex spaces as these structures can be used for

multiple functions. Related to this process is the scarcity of information on the actual processes that

take place in these spaces both in the inner city and in the suburbs. To borrow from the idea of Paul

Knox of 'stealth cities', these buildings constitute stealth office space.

As a result of fewer office developments in the last decade and the new forms of office

development, our notion of off ice 'development' has to be reconfigured. Instead of talking about actual

development, large real estate companies are more focused on ownership, and buying and selling of

office buildings, including the assembly of large portfolios of prestigious office properties. The early

1990s slump transpired in the reduction of real estate portfolios by many real estate companies and

several financial institutions. Pension funds have become extremely important in the real estate sector

in the 1990s decade. Recent acquisitions (mainly in 1998 to early 2000) of large office portfolios by all

the largest Canadian pension funds may suggest a new phase in the structure of the real estate sector

in general and of the office building sector in particular.

To conclude, structural changes. which include the composition of playen, and the emergence

of alternative f ons to the 'standard' off ie building, are transfomihg offce development and

ownership. New agents have joined or expanded their involvement in office development and

ownership, such as pension funds, real estate investrnent trusts and new types of small developen. On

the other hand, banks and life insurance companies are out of office development. In between are the

traditional real estate companies. These types of companies are undergoing a process of restructuring

as some companies continue to be large players but with a closer dependency on their financial

patrons. This emerging picture presents a challenge for future research.

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Gottlieb, M. (1 976) Long Swings in Udan Development. New York: National Bureau of Economic Research.

G uimond, P.S. and Sinclair, B.R. (1 984) Calgary Architecture: The Boom Years, 1972- 1982. Calgary: Detselig Enterprises.

Gutstein, D. (1 975) Vancouver Ltd. Toronto: Lorimer.

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--------- (1 999a) 'Why is Shanghai Building Gant Speculative Property Bubble?', International Journal of Urtian and Regional Research, 23,583-88.

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Hartshom, T.A. and Muller, P.O. (1989) 'Suburban Downtowns and the Transformation of Metropolitan Atlanta's Business Landscape', Urban Geography, 1 O, 375-95.

Harlzell, D., Shulman, D., and Wurtzebach, C. (1987) 'Refining the Analysis of Regional Diversification for IncomeProducing Real estate', Joumal of Property Research, 2, 85-95.

Harvey, D. (1 973) Social Justice and the City. London: Edward Arnold.

---- (1 978) 'The Urban Process under Capitalisrn: A Framework for Analysis', International Journal of Utban and Regional Researd, 2,101 -3 1 .

---- (1 982) The Limits tu Capital, Oxford: Blackwell.

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----- (1 992b) 'Urban Regeneration and the Development industry'. Rebujlding the City: Property-Led Urban Regeneration. Eds. P. Healey, S. Davoudi, and S. Tavsanoglu. London: Spon, 14-35.

----- (1 994) 'Urban Policy and Property Development: The Institutional Relations in an Old Industrial District', Environment and Planning A, 26, 1 77-98.

------- (1 998a) 'Regulating Propeity Development and the Capacity of the Developrnent Industry', Joumal of Properj. Research, 1 5,211 -27.

------- (1 998b) 'Building Institutional Capacity through Collaborative Approaches to Urban Planning', Environment and Planning A, 30, 1 53 1 -46.

----- and Banett, S.M. (1990) 'Structure and Agency in Land and Property Development Processes: Some ldeas for Research', Utban Studies, 27,89-1 M.

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Hoesli, M., Lizieri, C. and MacGregor, B. (1997) The Spatial Dimensions of the lnvestment Performance of UK Commercial Property', Uhan Studies, 34, 1475-94.

Houghton, T. (1993) 'On the Nature of Real Estate, Monopoly and Fallacies of Monopoly Rent', International Journal of Urban and Regional Research, 1 7,260-73.

Hoyt, H. (1 933) One Hundred Yean of Land Values h Chicago. Chicago: University of Chicago Press.

Huang, S. (1 989) Onim Suburbanuation in Toronto: Fragmentation, WoMorce Composition, and Laboursheds. Unpublished Ph.D. Dissertation, Department of Geograph y, University of Toronto.

Hughes, J.W., Miller, K.T. and Lang, R. (1992) The New Geography of SeMces and Offce Buildings. New Brunswick, NJ: Center for Urban Policy Research.

Hutton , T.A. (1 998) The Transfomation of Canada's Pacfic Metroplis: A Case of Vancouver. Montreal: lnstitute for Research on Public Policy.

Kantor, P. and Savitch, H.V. (1 993) 'Can Politicians Bargain with Business? A Theoretical and Comparative Perspective on Uiban Development', Uhan Affairs Quarte* 29,230-55.

Kennedy-Skipton, H. (1 993) Properiy Development and Uhan Regeneration: Policy-Led Offce Development in Glasgow/Clydebank and Manchester/Saiford. Unpublished Ph .D. Dissertation, Strathclyde University, Glasgow.

Keogh, G. (1 994) 'Use and lnvestment Markets in British Real Estate', Journal of Properly Valuation and Investment, 12,58-72.

Knox, P.L. (1 993) 'Capital, Material Culture and Socio-Spatial Differentiation'. The Restless Urban Landscape. Ed. P.L. Knox. Englewood Cliffs NJ: Prentice Hall, 1-34.

Kostin, D.J., Krutick, J.S., and Goldberg, S.J. (1989) Toronto Real Estate Market. Salomon Brothers.

Knigrnan, B.S. and Furiong, B.A. (1993) The Structure of the Office Industry'. The OMce Building: From Concept to hvestment Reality. Ed. J. R. White. Chicago: Counselon of Real Estate and the Appraisal Institute, 59-80.

Kuznets, S. (1 930) Secular Movements in Production and Prices: Their Nature and their Bearing upon Cyclical Fluctuations. Boston: Houghton Mifflin.

----- (1 958) 'Long Swings in the Growth of Population and in Related Economic Variables'. Proceedings of the AmenCan Philosophical Society, 102,25-52.

Ladd, H. and Wheaton, W. (1 991) 'Causes and Consequences of the Changing Urban Form: Introduction', Regional Science and Urban Ewnomiw, 21, 1 57-62.

Lamarche, F. (1 976) 'Property Development and the Econornic Foundations of the Urban Question'. Urban Sociology: C~itical Essays. Ed. C.G. Pickvance. London: Tavistock Publications, 85-1 1 8.

Leitner, H. (1 990) 'Cities in Punuit of Economic Growth: The Local State as an Entrepreneur', Political Geography QuaRedy, 9,147-70.

(1 994) 'Capital Markets, the Development Industiy and Urban Office Market Dynamics: Rethin king Building Cycles', Environment and Planning A, 26.779-802.

Lernon, J.T. (1 985) Toronto Since 1918: An lllustrated History. Toronto: Lorimer

-- (1 996) Liberal Dreams and Nature's Limits: Great Citjes of North A m e h Sine 160. Toronto: Oxford.

Lichfield, N. and Darin-Drabkin, H. (1980) Land Policy in Planning. London: Allen and Unwin.

Lindahl. D.P. (1 997) New Frontiers of Capital: A Geography of Commercial Real Estate Finance. Unpublished Ph.D. Dissertation, Department of Geography, University of Washington.

Lizieri, C., Baum, A., and Scott. P. (2000) 'Ownenhip, Occupation and Risk: A View of the City of London Office Market, M a n Studies, 37, 1 109-29.

Logan, J. (1 993) 'Cycles and Trends in the Globalization of Real Estate'. The Restless Ur6an Landscape. Ed. P.L. Knox. Englewood Cliffs, NJ: Prentice Hall, 33-54.

------ and Molotch, H. (1 987) Urban Fortunes: The Political Economy of Place. Berkeley: University of California Press.

-------- Whaley, RB., and Crowder, K. (1 997) The Character and Consequences of Growth Regimes: An Assessment of 20 Years of Research', Uhan Affaiis Review, 32,603-30.

Lorimer, J. (1 978) The Developers. Toronto: Lorimer.

McDowell, L. (1 998) 'Elites in the City of London: Sorne Methodological Considerations', Environment and Planning A, 30,2133-46.

McGough, A.J. and Tsolacos, S. (1997) The Stylised Facts of the UK Commercial Building Cycles'. Environment and Planning A, 29,485-500.

McNamara, P.F. (1 985) The Control of Omce Development in Central Edinburgh. Unpublished Ph.D. Dissertation, University of Edinburgh.

MacLaran, A. (1 986) 'Pmperty and the lnstlutional lnvestor in Ireland'. ln5h Geography, 19.69-73.

--------- (1 993) Dublin: The Shaping of a Capital. London and New York: Belhaven.

(1 996) 'Office Development in Dubiin and Tax Incentive Areas', Irish Geography, 29,49-54.

-- Malone, P., and Beamish, C. (1 985) Properly and Lhe Uhan Environment: Dublin. Dublin: Tinity Coflege.

Majury, N.C. (1 999) Local Knowledge, G W M a M s and the Geography of hvesbnent Banking. Un pu blished Ph.0. Dissertation. Deparnent of Geography, University of Toronto.

Markusen, J.R. and Scheffrnan, D.T. (1 977) Speculation and MonopoEy in Uhm Development: Analyfical Foundations wilh Evidence for Toronto. Toronto: University of Toronto Press.

Marriott, 0. (1 967) The Propew Boom. London: Hamish Hamilton.

Martin, R. and Minns, R. (1995) 'The Spatial Structure and Implications of the UK Pension Fund Sy stem', Regional Studies, 29, 1 25-44.

Massey, D. and Catalano, A. (1 978) Capifal and Land: Landownership by Capital in Great Britain. London: Edward Arnold.

Matthew, M. R. (1 989) Toronto Offces: Suburban Patterns and Processes. Unpublished Ph.D. Dissertation, The University of Waterloo.

--- (1 992) 'Office Buildings in Office Parks and Subuhan Downtowns', Canadian Journal of Urban Research, 1,39-57.

-- (1 993a) Case Studies of Some Suburban ûfGce Centres in Toronto. Winnipeg: lnstitute of Urban Studies.

-------- (1 993b) The Suburbanization of Toronto Offices', Canadian Geographer, 37,293-306.

Miles, M. and McCue, T. (1 984) 'Commercial Real Estate Retums', Joumal of the American Real Estate and Urban Economics Association, 12,355-ï?.

Mills, E.S. (1 995) 'Crisis and Recovery in Office Markets', Journal of Real Estate Finance and Economics, 10,49-62.

Milner, 5. (1 99 1 ) The Hidden Establishment: The lnside Story of Canada's international Business Elite. Toronto: Viking.

Miron, J. (2000) 'Cities as Real Estate'. Canadian Cities in Transition: The Twenty-First Century. Eds. T. Banting and P. Filion. 2d Edition, Toronto: Oxford, 154-72.

Mollenkopf, J. (1 983) The Contested City. Princeton: Princeton University Press.

Molotch, H. (1 976) 'The City as a Growth Machine: Toward a Political Economy of Place', American Journal of Sociology, 82,309-30.

----- (1 993) 'The Pollical Economy of Growth Machines', Journal of Man Affairs, 15,29-53.

Moricz, Z., and Murphy, L. (1 997) 'Space Traders: Reregulation, Property Companies and Auckland's Office Market, 1 975-1 994'. htemational Journal of Uhan and Regional Research, 21 , 1 65-79.

Morrison, N. (1992) The Commercial Redevelopment Proces in Glasgow 1980-1991. Unpublished Ph.D. Dissertation, Centre for Planning, University of Strathclyde, Glasgow.

Myrdal, G. (1 957) Economic Theory of Underdeveloped Regions. New York: Harper and Row.

Nanthakumaran, N. and Watkins, C. (2000) 'Understanding Property Market Dynamics: lnsights from Modelling the Supply-Side Adjusment Mechanism', Environment and Planning A, 32,655-71.

OIds, K. (1 995) 'Globalization and the Production of New Urban Spaces: Pacific Rim Megaprojects in the Late 20h Century', Environment and Planning A, 27, 1 71 343.

OIMalley, S.P. (1 989) The Role of Financial lnstilutions, Property Developen and Contractorr in Central Wellington 3 Ofice Development 19584998. Un pu blished MA Thesis, Victoria University, Wellington.

Pickvance, C.G. (1985) 'Spatial Policy as Territorial Politics: The Role of Spatial Coalitions in the Articulation of 'Spatial' lnterests and in the Demand for Spatial Policy'. Political Action and Social Idenfily: Class, Localily and Ideology. Eds. G. Rees. London: Macmillan, 1 17-42.

Pivo, G. (1 993) 'A Taxonomy of Suburban Office Clusten: The Case of Toronto', Urban Studies, 30, 31 -49.

Pratt, A.C. (1 994) Uneven Re-Production: hdustry, Space and Society. Oxford: Pergamon .

Pryke, M. (1 991) 'An International City Going Global: Spatial Change in the City of London', En vironment and Planning D: Society and Space, 9, 1 97-222.

--------- (1 994a) 'Looking Back on the Space of a Boom: (Re)developing Spatial Matrices in the City of London', Environment and Planning A, 26,235-64.

-------- (1 994b) 'Urbanizing Capitals: Towards an lntegration of lime, Space and Economic Calculation'. Money, Power and Space. Eds. S. Corbridge, N. Thrift and R. Martin. Oxford: Blackwell, 21 8-52.

Rabianski, J.S. and Cheng, P. (1 997) 'Intrametropolitan Spatial Diversification', Journal of Real Estate Portfolio Management, 3, 1 1 7-28.

Rast, J. (1 999) Remaking Chicago. DeKalb, IL: Northern Illinois University Press.

Ratcliffe, J. and Stubbs, M. (1996) Uhan Planning and Real Estate Development. London: UCL Press.

Relph, E. (1 987) The Modem Uban Landscape. Baltimore: The Johns Hopkins University Press.

--O------ (1 991) 'Suburban Downtowns of the Greater Toronto Area', Canadian Geographer, 35,421-25.

Richardson, H.W. (1 969) Regional Economics. New York: Praeger.

Rosen, K.T. (1 984) 'Toward a Model of the O f f i Building Secîor', Joumal of fhe American Real Estate and Urban Economics Association, 1 2,261 -69.

Roweis, S.T. and Scott, AJ. (1 981 ) 'The Uiban Land Question'. Urbanizaaoon and Urban Planning in Capitalist Society. Eds. M. Dear and A.J. Scott. London and New York: Methuen. 123-57.

Sancton, A. (1983) 'Conclusion: Canadian City Politics in Comparative Perspective', Cify Politiks in Canada. Eds. W. Magnusson and A. Sancton. Toronto: University of Toronto Press, 291-317.

Sassen. S. (1 991) The Global Cify: New York, London and Tokyo. Princeton NJ: Princeton University Press.

PU (1 994) Cities in a WorM Economy. Thousand Oaks CA: Pine Forge.

Saunders, P. (1 979) Uiban Polittics: A SociologrCal lnterpretation. London: Hutchinson.

Savitch, H.V. (1 995) The Emerging of Delocalued Clies', Urban Affairs Review, 31, 137-42.

Sayer, A. (1 984) Method in Social Science: A Realist Approach. London: Hutchinson.

-------- (1 987) 'Explanation in Economic Geography: Abstractions venus Generalization', Progress in Human Geography, 6,6848.

Schoenberger, E. (1991) 'The Corporate Interview as a Research Method in Economic Geography', Professional Geographer, 43, 1 80.89.

Scott, A.J. (1 980) The Urban Land Nexus and the State. London: Pion.

Scott, P. (1 996) The Property Masters: A History of the Bnfsh Commercial Property Sector. London: Spon.

Sernple, K. (1 996) 'Quatemary Places in Canada'. Canada and the Global Economy: me Geography of Structural and Economic Change. Ed. J. M o n . Moiitreal 8 Kingston: McGill-Queen's University Press, 352-79.

Sewell, J. (1 993) The Shape of the City: Toronto Stmggles with Modem Planning. Toronto: University of Toronto Press.

Shilling, J.D. (1 997) 'Economic Forces Shaping lnvestment in Office Markets', Joumal of Propeity Finance, 8,283-302.

------ Sirmans, C.F., and Corgel, J.B. (1987) 'Price Adjustment Process for Office Rental Space', Joumal of Urban Economics, 22,90-1 W.

Shilton, L. and Stanley, C. (1 996) 'Spatial Concentration of Institutional Property Ownenhip: New Wave Atomistic or Tradlional Urban Clustering', Joumal of Real Estate Research, 12,413-28.

Smith, N. (1 984) Uneven Development. Oxford: Blackwell.

S pun, P. (1 976) Land and Uhan Development: A Preliminary Case Study. Toronto: Lorimer

Stewart, W. (1 993) Too 8ig to Fail, Olympia & York: The Story Behind the Headlines. Toronto: McClelland and Stewart.

Sudjic, D. (1 992) The 100 Mile City. London: Andre Deutsch.

Swyngedouw, E.A. (1 992) The Mammoth Quest. 'Globalization', Interspatial Competition and the Monetary Order. The Construction of New Scales'. Cities and Regions in the New Europe: The Global-Local Interplay and Spatial Development. Eds. M. Danford and G. Kafkalas. London: Belhaven, 39-67.

Todd, G. (1 998) 'Megacity: Globalization and Govemance in Toronto', Studies in Political Economy, 56, 1 93-21 6.

Turok. 1. (1 992) 'Property Lad Urban Economic Regeneration: Panacea or Placebo', Environment and Planning A, 24,36 1 -79.

Urban Land l nstitute (1 985) Ta11 CMce Buildings in the United States. Washington DC: The Urban Land Institute.

___- (1 998) Office Development ifandbook. 2"4 Edition. Washington DC: The Urban Land Institute.

Warf, B. (1 994) 'Vicious Circle: Financial Markets and Commercial Real Estate in the United States. Money, Power and Space. Eds. S. Corbridge, N. Thrift and R. Martin. Oxford: Blackwell, 309- 26.

Watkins, A.J. (1 980) The Practice of Uhan Economics. Beveily Hills CA: Sage.

Weiss, M .A. (1 987) The Rise of the Community Builders: The American Real Estate Industry and Uhan Land Planning. New York: Columbia University Press.

a---- (1 991) 7he Politics of Real Estate Cycles', Business and Economic History. 20, 1 27-35.

Wheaton, W.C. (1 987) The Cyclic Behavior of the National Office Market', Journal of We American Real Esfate and Urban Economic Association, 15,281 -99.

Whitehead, J .C. (1 987) Decision Making in the Propedy Development lndustry During a Business Cycle. Unpublished Ph.D. Dissertation, Department of Geography, University of British Columbia.

-- (1 996) The Midas Syndrome: An Investigation into Property Booms and Busts. Vancouver: B.C. Geographical Senes. Number 51.

W illis, C. (1 995) Fom Follows Finance: Skyscrapers and Skylines in New York and Chicago. New York: Princeton Architectural Press.

Wilson, D. (1991) 'Urban Change, Circuits of Capital and Uneven Development', Professional Geographer, 43,403-15.

Wolverton, M.L., Cheng, P. and Hardin, W.G. (1998) 'Real Estate Portfolio Risk Reduction through ln tracity Diversification', Journal of Real Estate PoMolio Management, 4,3541 .

Zeckendorf, W. (1 970) Tirs Autobiography of Wlliam Z&endod New York: Hol, Rinehart and Winston.

Zukin, S. (1 99 1 ) Landsapes of Po wer: From Detroit to Disney World. Berkeley: University of California Press.

--O-- (1 992) The City as a Landscape of Power: London and New York as Global Financial Capitals'. Global Finance and Urban LMng: A Study of Metropolifan Change. Eds. L Budd and S. Whirnster. New York: Routleâge, 195-223.

Reports and Directories

BOMA of Calgary (1 989) Calgary Building and Leasing Guide.

Colliers l ntemational Property Consuitants, Canadian Real Estate Revie w, Annual, 1 996-20.

InSite Real Estate Information Systems, Canada Office Me, Quarterly, 1997-98.

Royal LePage, Canadian Office Guide, 1999-2000, Mississauga: RLP Publications.

Royal Le Page (previously A. E. Le Page), Toronto Oflice Leasing Directory, Annual, 1 964-99.

Royal Le Page, Office Conversion Report., January 1 995.

Toronto Office Guide, Quarterly, 1 985-91.

Toronto Real Estate Board (1 988) Insight 1988: lndustnal and Commercial Investment.

Government Publications

Bo ro ugh of North Y O rû (1 973) Study of Future Offïce Development Polky.

City of Calgary (1 979) Lo~ation of Oflce Emplopent in Calgacy, Planning Department, Research and Long Range Planning Section, February.

City of Mississauga, New Industrial and Commercial Building Pemits, Economic Develo pment Office, 1 990-99.

City of Mississauga (1 988) Office Space Availabildy Suwey, Economic Development Office, Septem ber.

City of Mississauga (1 997) otf'ke Building lnventory, Economic Development mi , Juiy.

City of Mississauga (1 998) The Outlook for Office Development, August.

City of Mississauga (2000) Cdy Business, A newsletter for Mississauga Businesses, winter.

City of North York, Comprehensive ûffiiial Plan Program, mc ia l Plan Amendment, No. 26 1 (Oflice Policy), 1981, 1 983.

City of North York (1 997) North York Office Survey, Economic Development Centre, Spring.

City of North York (1 997) Yonge Comdor Development Database, Planning Department, Novernber.

G l us kin , 1. (1 976) Royal Commission on Corporate Concentration, Study No. 3, Cadillac Fairvie w Corporation Lhited: A Corporate Background Report, January.

Municipalii of Metropolitan Toronto (1 989) Centres and Mice Areas, Metropolitan Toronto Planning Department, Policy Development Division, Report No. 9.

Municipalii of Metropolitan Toronto (1 989) OMce Space Characteristics Report, Metropolitan Toronto Planning Department, Research Division.

Mun icipality of Metro politan Toronto (1 992), Office space and employment characteistics: Metropolitan Toronto and the Greater Toronto Area, Toronto: The Metropolitan Planning Department Research Division.

Office of the Superintendent of Financial Institutions, Summaiy Financial Data, Life Insurance Companies, Properfy and Casualty lnsurance Campanies (Various years).

Statistics Canada, Building Pemits, Catalogue No. 64-203 (1 961 -97). - - CANSlM Matrix No. 4073 (Building Pemits, 1998-99). - Corporation and Financial Statistlcs, Catalogue No. 61-207 (Various yean). -- Financial and Taxation for Enteqxises, Catalogue No. 6 1 -2 1 9 (Various years). ---- Canadian Standard Industrial Classikation for Companies and Enterprises, 1 980, Catalogue

NO. 12-570E. --- National Economic and Financial Accounts, Quarterly Estimates, 1961 -1 992 and Third Quarter

1998, Catalogue No. 13-001.

Annual Reports

Canadian Health and Life lnsurance Association, 1998 Canadian Institute of Public Real Estate Companies, 1970-96

Real estate c o m ~ a n i e s BCE Development Corporation (previously , Daon Development Corporation) Bentall Corporation Brarnalea Limited Brookfield Properties Corporation Cadillac Fairview Corporation (previously, Cadillac Development Corporation and Fairview Corporation) Cambridge Shopping Centres (previously. Cambridge Leaseholds) Campeau Corporation Dundee Realty Corporation Gentra Inc. Marathon Realty Markborough Properties MEPC Canadian Properties O&Y Properties Oxford Properties Group (previousiy, Oxford Oevelopment Group) S.B. Mctaughlin Associates Limited TrizecHahn Corporation (previously, Trizec Corporation) Y&R Properties

lnsurance c o m ~ a n i e s 1. Canada L ie 2. Confederation Life 3. Great-West Life 4. London Life 5. Manulife Financial (previously Manufacturers Lie) 6. Mutual Life of Canada 7. North American Life 8. Sun Life Financial (previously, Sun Lie Assurance of Canada)

Banks 1. Bank of Nova Scotia 2. Canadian lmperial Bank of Commerce (CIBC)

Newspaper and Magazine Articles

Building Developmenf, 1 971 'M.E.P.C Canadian Pmperties', December.

Building Management, 1966 'Cemp Investment, Fairview Corporation', February, pp. 26-31.

Calgary Herald 1 982 'Office buildings shelved', October 5. ---- 1 982 'Economic woes ground Bankers Hall', October 21. --- 1998 'Cadillac FaiMew buys The Tower', February 10.

Canadian Building 1972 'Shipp. Harbridge join in $30 million commercial project in Etobicoke'. January. ---- 1974 'Office Building: Trends, problems and frustrations', August.

- 1975 September. -- 1976 'British pullout or Canadian take-over?', June. -- 1976 'Office buildings', August. - 1 978 'S hipp Corp. plans commercial centre at Mississauga', February. - 1981 September, p. 15. - 1985 'Pension funds look for better retums', October, pp. 37-41. - 1 989 'Taking Heart', March.

Canadian Business 1976 What's happening in real estate', October. ----- 1996 November, pp. 33-39.

Cify Planning 1983 'The Development Scene: Scotia Plaza-Waterpark Place', December.

Dai& Commercial News 1998 'Ofd Toronto factories to be redeveloped for retail market', October 20. - 1999 'Toronto area office space in short supply', October 1. Financial Post 1981 'New contracts reflect changes in financing', October 24. -- 1984 'Bankers wage a war in Toronto's high-rise jungle', June 9. --- 1987 ' Despite space glut, Calgary is still buildings', March 2. ---- 1989 'Ottawa to small now for Minto Developments', July 17. -- 1989 'Calgary buffer against energy ties'. September 20. ----- 1990 'Real estate a haven for foreign funds', September 1 9. - - 1991 'Hong Kong developer arrives', November 6. ---- 1992 'Sun Life proves itself an insurer with timing', June 29. - - 1992 'York-Hannover besieged', October 7. ----- 1993 'European investors keen on Toronto core', April21. ---- 1994 'Carnrost loses flagship towef, March 8. ----- 1996 'Hong Kong spectre looms once more on Canada's skyline', August 7. ----- 1998 '1 997 was the year of the REIT'. Januarj 3. ---- 1998 'GWL Realty entes Toronto market', January 29. ---- 1998 'Fifth tower proposed for Calgary', June 5. --- 1998 'REITs move into construction', June 6. Financial Post Magazine 1999 Financial Post 500,35m Edition.

Financial Times 1982 'Calgary's dramatic office market downtum', October 25. ---- 1983 'Insurers: The new real estate developers', October 31.

Globe & Mai/ 1973 'In Scarboro, the centre is in the middle', March 9. ---- 1973 'Fairview Corp. plans fourth tower in Toronto-Dominion Centre', June 7. --- 1974 'Developing in city is 'a privilege', Toronto's chief planner tells OMB'. November 1. ---- 1975 'Take core from City Council control, inquiry on Metro urged in two briefs', October 29. ----- 1975 'Will Scarborough find true happiness ... and a downtown?'. December 12. --- 1977 'Marathon Realty intends to become substantial force in U.S. real estate', May 2. ---- 1978 'Developers appealing decision on central area plan to cabinet', October 4. -- 1979 'Cabinet approves Toronto downtown plan that restricts office growth', February 3. ----- 1981 'Scotiabank reported planning $400 million tower in Toronto', March 13. ----- 1981 'Mistakes haunt development', September 24. --- 1982 'Changing role for developers predicted', September 21. ---- 1982 '$300 million bank building eyed for downtown Toronto', October 5. ---- 1983 'Prudential', July 28.

- 1983 'Cadillac, T-D build tower despite oversupply', September 23. -- 1 984 7-D opposes Scotia Plaza zoning', May 17. -- 1984 7-0 bank seeks $36 million in towering feud', May 29. - 1984 'Downtown businessmen back bid to pare tower', June 22. - 1984 'Scotia tower wins approval despite protest', June 27. - 1984 '1 960s revisited with banker on other side', June 28. - 1984 'Secret $2-million donation ciears way for Scotia Plata', November 19. - 1985 'Daon wins office site in bid with Cadillac', October 3. - 1986 'Daon profi will slow during next few years', February 22. - 1986 'Oxford sells to buildings in BCE unit', March 13. -- 1986 'Mississauga mayor detemined to avoid Edmonton's mistakes', September 9. - 1987 'Developers give generously to city politicians', December 1 1. - 1987 'Bell office towers get the green light from City Council', December 15. - - 1988 'Inducon alliances help development projects', October 11. - 1989 'CIBC unveils subsidiary for real estate development', January 1 1. --- 1991 'Developers corne under fire', July 30. - - 1991 'Big banks looking at role as developers', August 26. - 1991 '0&Y seeks advance ruling on Scotia Plaza purchase', September 18. -- 1991 'Real estate market gets powerful investor', October 1. -- 1992 'Tirne more crucial than money for Reichmann restructuring', Maah 26. - 1992 'O&Y showing a variety of debt', March 26. - 1992 'lnducon placed in bankniptcy', March 31. - 1992 'Brarnalea seeks court protection', December 23. -- 1 993 'Prudential claims O&Y tower', January 1. ---O 1993 'Giant Toronto office complex rnothballed', August 19. - - 1994 'U.S. 'vulhires' are flocking north', April29. - 1994 'Cadillac's huge debts revealed', December 31. -- 1995 'Insurers bail out of real estate', Apnl3. - - 1 995 'Spec building back in Toronto', July 1 1. ---- 1996 'Marathon shifts focus to downtown office towers', March 4. - - 1996 'HIR Developrnent spins off property', December 5. - - 1998 'TrizecHahn buys four U.S. office towers', September 4. --- 1998 'Warehouses to become shops, offices', October 15. -- 1998 'Pension funds: The big kids on the block', November 14. ---- 1999 'Sale of Scotiabank's real estate portfolio close to completion', June 17. - - - 1999 'Calgary: Western Canada's head-off ice capital', August 3. --- 1999 'CIBC renews tied to Reichmanns with loan', August 6. ----- 1999 'CIBC plan sweeping sale of real estate', August 13. --- 1999 'Pension funds taking over public real estate companies', December 3. ---- 1 999 'B.C. funds grab CIBC propetties', Decernber 1 1. -O--- 2000 'Teachers leaves Cadillac alone to pick its CEO', March 27. ----- 2000 'TrizecHahn unveils plan to reinvent itself, March 28. --- 2000 'Toronto's garment district is spotting g!ad rags', April29. ---- 2000 'Office construction expected to double', May 3. - - 2000 'Cadillac Fairview CE0 announces new executive team', May 25.

Mays, J.B. 'Places in the Haartland', Globe & Mai/, August 5, 1992.

Metropolitan Toronto Business Jcumal1985 'Ûoing west, young man?', July-August.

Mississauga News 1968 'Suburban sprawk Ifs getting wone, but Peel offen something better', March 26.

-- 1969 'Canada's largest ready for construction', February 12. - - 1969 'McLaughlin offer to good to miss', July 2. - 1976 'Mississauga City Centre', March 24. -- 1988 'Keep downtown in city centre, Square One boss tells council', Februaiy 24. -- 1990 'City centre shuttle bus service unique in North America', February 18. -- 1994 'Orlando power centre development not at al1 what city council expected', October 19. -- 1 995 'Developer defends power centre', February 12. -- 1995 'Developers partnen in shaping cny's future face', August 1 1. - 1995 'Mississauga's builder-friendfy reputation growing', November.

Mississauga Business Times 1 996 'Controversial rezoning divides City councillon', June. - - 1 996 'Controveny dogs plan for rezoning in Heartland', October. -- 1 997 'Hammerson fights Orlando's retail moves', March. ----- 1 998 'Mississauga's Heartland: A 'power centre', November. --- 2000 'The developen: Key players in our future', March. - 2000 'Orlando has big plans for Brampton area', June.

National Post 1999 'Calgary real estate falls out of the saddle: 6.7% vacancy rate', February 10. ---- 1999 'GWL's strategy based on don7 fall in love with your real estate', April 16. ---- 1999 '€-commerce luring banks away from real estate assets', July 31. - 1999 'Cadillac falls to Teachers in $2.38 property deal', December 2. --- 1999 'Pension fund nabs seven CIBC pmperties', December 1 1.

O'Donnell, J. (1 989) 'The Entrepreneurial Developer', Uhaan Land, 48,7,34-5.

Real Estate News 1995 'Downtown office conversions in slowing', February 17. ---- 1 988 'Mississauga begins corporate courting campaign', November 25.

Toronto Star 1984 '68-storey Scotiabank tower approved', June 29. ----- 1987 'Huge Bell development gets approval from council', December 15. ---- 1988 'Let 'downtown' North York expand, panel told', January 13. ---- 1988 'Giveaway to devekpers revives reform group', November 5. --- 1989 'Major bank creates subsidiary to manage real estate holdings', January 11. ---- 1989 'Bay-Adelaide good for city consultants say', May 25. ---- 1990 'CIBC division wins bidding to develop Hydro complex'. March 10. --- 1991 'Residents protest Yonge St. highrises', Novernber 26. --O-- 1992 'Job boom seen in North York', January 14. ---- 1994 'Investors pour millions into Hong Kong corner', December 29. ----- 1999 'Oxford seals Royal Bank deal', September 23. ---- 2000 'Reichmann plans new tower', June 29.

The Telegram 1968 'Phn 25,000 homes, core for new city'. April27.

Trade and Commerce 1 98 1 'Office space creation tops in North America', Aug ust, 72-84.

Interviews

Allison David, Vice President, Investments, Real Estate Dision, Manulife Financial, January 21, 2000 Amell Gordon, Chairman and CEO, Brwkfield Properties (formedy with Oxford Development Corporation and Trizec Corporation), June 1 1,1999 Beales John, Vice President and General Manager, Real Estate Division, Manulife Financial (fomerly with Marathon Realty), January 18,2000 Bullock James, former President, Cadillac Faiwiew Corporation, July 15, 1999 Campbell John, President, Brookfield Properties Management, July 6, 1999 Cowan Jay, Leasing, GWL Realty Advison, June 9,1999 Cuningham Jeff, Manager, Acquisition and Disposition, Oxford Propeities Group, June 9, 1 999 Down Lome, Vice President, Canadian Mortgages, Manulife Financial, April 13,2000 Eagles Stuart, fonner President, Marathon Reaity, June 29,1999 G hert Bernard, former President, Cadillac hirview Corporation, June 1 1, 1999 Gillin Philip, Vice President and General Manager of Real Estate, Sun Life of Canada (fomerly with Cadillac Faiwiew Corporation), June 8,1999 Gluskin Ira, Gluskin Sheff & Associates, June 28, 1999 Heyland Bruce, former President, Hammerson Canada, Apnl 13,2000 Jacob Andrew, formerly with Campeau Corporation, May 21,i 999 Kidzium John, Vice President, Development and Corporate Facilities, Real Estate Division, Manulife Financial, January 18, February 10,2000 King David, fonner President, Campeau Corporation, June 21, 1999 Kramer Gary, Orlando Development Corporation (fonneriy with the Planning Department, City of Mississauga), July 29, 1999 Lennox Andrew, Senior Vice President, Real Estate, Bank of Nova Scotia (formeriy with Hammerson Canada and Daon Development Corporation), March 7,2000 Levitt John, Senior Vice President, Business Development, O&V Properties, May 20, 1999 Love Donald, Founder, Chaiman and President, Oxford Development Group, July 6,1999 Marotta John, Director, Leasing, ClBC Development Corporation, May 26,1999 Moore Bill, Senior Vice President, Office Leasing, Royal LePage Commercial Inc., July 8, 1999 Moyes Scot, Manager, Office Leasing, Orlando Development Corporation (fomerly with Royal LePage), June 1,1999 Rotenberg Kenneth, former President, Y4R Properties, July 5, 1999 Soskolne Ron, fomer Vice-President, Olympia & York Developments; fomerly with the Planning Department, City of Toronto, May 19,1999 Thomson Andrew, Director, Development, TrizecHahn Corporation (formerly with Marathon Realty and Bramalea Limited), May 19, May 28,1999 Weinberg David, President, ClBC ûevelopment Corporation (formerly with Cadillac Faiwiew Corporation and the Planning Department, City of Toronto), June 10, 1999 Wood Neil, former Vice-Chairman and President, Cadillac Faiwiew Corporation; former President. Markborough Proparties, June 22,1999 Zsolt Andrew, Founder and President, lnducon Development Corporation, July 22, 1999