High Art Capital recently announced the launch of a new fund called the Greater Toronto Area (GTA) Rental and Affordable Housing Initiative. It has been anchored by a $300 million mezzanine debt commitment (and a "nominal equity investment") from the Building Ontario Fund (BOF) and is expected to be capitalized in total with a minimum of $1.3 billion.
The objective is to acquire approximately 2,200 rental homes in blocks within newly completed, unsold condominiums across the GTA and convert them into long-term rental housing. Included within this will be approximately 550 affordable rental homes that are expected to be title-protected at rents set at the lower of 25% below local market rent or 30% of median gross household income.
This is interesting, but it's certainly not the first example of investors buying, or wanting to buy, excess condominium inventory. However, it may become the largest in Toronto and, as far as I know, it's the only one to partner with the public sector (BOF is a provincial Crown agency).
The way it is intended to work is as follows:
Condominium developers are sitting on unsold inventory and maybe on inventory they took back after purchasers defaulted (and which may be subject to legal action). What High Art will do is say to developers, "Hey, if you give me a really awesome deal, I'll take 50 of those condominium units off your hands." And if the developer is desperate enough, they will say, "Sure, that sounds good. Let's do a deal and then go for a nice closing dinner."
But at what price?
As we've talked about many times before on the blog, developer pricing is typically based on a cost-plus model. We take our costs, add a margin, and there's the final sticker price. The reason prices haven't fallen as much as one might expect on unsold units is because they're hitting the "cost floor"; developers don't want to lose money, unless they are given no other option.
But for this rental fund model to work at reasonable costs of debt, I suspect that, in many/most cases, deals will need to be struck below a developer's cost basis. So, it'll be very interesting to watch how this fund deploys capital and who the winners and losers are in this market.
Regardless, I think it is good that we are seeing this sort of activity. The faster we deal with the pain, the faster we'll get to the other side.
Cover photo by Patrick Boucher on Unsplash
Within a week, Paris will know, with near certainty, who its next mayor will be. (The first round of results will be announced this evening.) The two frontrunners are Emmanuel Grégoire (on the left) and Rachida Dati (on the right). Grégoire is the status quo vote, and Dati is the "I want change" vote.
From a city-building standpoint, one of the ways that this is being presented is as a battle between bikes and cars. Not surprisingly, the current mobility approach has been criticized for creating a divide between wealthier residents in transit-rich central Paris (where only about a quarter of households own a car) and residents in the more car-oriented suburbs.
Because after 12 years under Mayor Anne Hidalgo it's pretty clear that "the bike beat the car in Paris." From 2002 to 2023, car traffic fell by more than half, dedicated cycle lanes expanded sixfold, and today, bike trips outnumber car trips by more than 2 to 1 in the city.
As an outsider to the city, I can only read about what's going on, but what I find interesting is that this particular mobility issue doesn't appear to be as political as the headlines might suggest.
Dati has softened her initial criticism of popular cycle lanes and instead focused on concerns over dirty streets.
“We’re not fighting an ideological battle on [transportation] issues,” Dati told news agency Reuters while greeting shoppers in northern Paris. “We just want things to be organised.”
And:
She [Dati] has promised not to reverse the left’s flagship policy of transforming a once traffic-clogged dual carriageway into a car-free pedestrian walkway along the banks of the Seine, but will renovate those pedestrian spaces.
It is worth reiterating that one of the main reasons the majority of people live in cities is because they would like to make money and improve their economic status. There are, of course, other reasons too, but making money is an enduring attractor. In Alain Bertaud's book, Order Without Design: How Markets Shape Cities, he famously argued that cities are, first and foremost, labour markets.
Because of this, the success of cities depends on their ability to harness talent and turn it into economic progress. New York City, for example, is the city it is today because it was the largest port of entry for immigrants. And because transportation costs were high at the time, people arrived in New York and stayed in New York to work and create businesses.
The same thing is generally true today in the San Francisco Bay Area. It is estimated that roughly 50% of all tech startups and 59 of the top 100 highest-valued unicorns have a foreign-born founder. (I'd love to know what percentage are Canadian graduates of the University of Waterloo.) These are immigrants looking for money and economic opportunity, and the local ecosystem is providing the right preconditions.
But if the preconditions for success disappear, people will start to both leave and not come in the first place. So, it's also worth reiterating that the fortunes of cities have always risen and fallen over a long enough time horizon. Here's a great excerpt from a
High Art Capital recently announced the launch of a new fund called the Greater Toronto Area (GTA) Rental and Affordable Housing Initiative. It has been anchored by a $300 million mezzanine debt commitment (and a "nominal equity investment") from the Building Ontario Fund (BOF) and is expected to be capitalized in total with a minimum of $1.3 billion.
The objective is to acquire approximately 2,200 rental homes in blocks within newly completed, unsold condominiums across the GTA and convert them into long-term rental housing. Included within this will be approximately 550 affordable rental homes that are expected to be title-protected at rents set at the lower of 25% below local market rent or 30% of median gross household income.
This is interesting, but it's certainly not the first example of investors buying, or wanting to buy, excess condominium inventory. However, it may become the largest in Toronto and, as far as I know, it's the only one to partner with the public sector (BOF is a provincial Crown agency).
The way it is intended to work is as follows:
Condominium developers are sitting on unsold inventory and maybe on inventory they took back after purchasers defaulted (and which may be subject to legal action). What High Art will do is say to developers, "Hey, if you give me a really awesome deal, I'll take 50 of those condominium units off your hands." And if the developer is desperate enough, they will say, "Sure, that sounds good. Let's do a deal and then go for a nice closing dinner."
But at what price?
As we've talked about many times before on the blog, developer pricing is typically based on a cost-plus model. We take our costs, add a margin, and there's the final sticker price. The reason prices haven't fallen as much as one might expect on unsold units is because they're hitting the "cost floor"; developers don't want to lose money, unless they are given no other option.
But for this rental fund model to work at reasonable costs of debt, I suspect that, in many/most cases, deals will need to be struck below a developer's cost basis. So, it'll be very interesting to watch how this fund deploys capital and who the winners and losers are in this market.
Regardless, I think it is good that we are seeing this sort of activity. The faster we deal with the pain, the faster we'll get to the other side.
Cover photo by Patrick Boucher on Unsplash
Within a week, Paris will know, with near certainty, who its next mayor will be. (The first round of results will be announced this evening.) The two frontrunners are Emmanuel Grégoire (on the left) and Rachida Dati (on the right). Grégoire is the status quo vote, and Dati is the "I want change" vote.
From a city-building standpoint, one of the ways that this is being presented is as a battle between bikes and cars. Not surprisingly, the current mobility approach has been criticized for creating a divide between wealthier residents in transit-rich central Paris (where only about a quarter of households own a car) and residents in the more car-oriented suburbs.
Because after 12 years under Mayor Anne Hidalgo it's pretty clear that "the bike beat the car in Paris." From 2002 to 2023, car traffic fell by more than half, dedicated cycle lanes expanded sixfold, and today, bike trips outnumber car trips by more than 2 to 1 in the city.
As an outsider to the city, I can only read about what's going on, but what I find interesting is that this particular mobility issue doesn't appear to be as political as the headlines might suggest.
Dati has softened her initial criticism of popular cycle lanes and instead focused on concerns over dirty streets.
“We’re not fighting an ideological battle on [transportation] issues,” Dati told news agency Reuters while greeting shoppers in northern Paris. “We just want things to be organised.”
And:
She [Dati] has promised not to reverse the left’s flagship policy of transforming a once traffic-clogged dual carriageway into a car-free pedestrian walkway along the banks of the Seine, but will renovate those pedestrian spaces.
It is worth reiterating that one of the main reasons the majority of people live in cities is because they would like to make money and improve their economic status. There are, of course, other reasons too, but making money is an enduring attractor. In Alain Bertaud's book, Order Without Design: How Markets Shape Cities, he famously argued that cities are, first and foremost, labour markets.
Because of this, the success of cities depends on their ability to harness talent and turn it into economic progress. New York City, for example, is the city it is today because it was the largest port of entry for immigrants. And because transportation costs were high at the time, people arrived in New York and stayed in New York to work and create businesses.
The same thing is generally true today in the San Francisco Bay Area. It is estimated that roughly 50% of all tech startups and 59 of the top 100 highest-valued unicorns have a foreign-born founder. (I'd love to know what percentage are Canadian graduates of the University of Waterloo.) These are immigrants looking for money and economic opportunity, and the local ecosystem is providing the right preconditions.
But if the preconditions for success disappear, people will start to both leave and not come in the first place. So, it's also worth reiterating that the fortunes of cities have always risen and fallen over a long enough time horizon. Here's a great excerpt from a
Correct me if I'm wrong, but what this tells me is that Parisians actually like the city's transition away from the car. I'm reminded of last summer in Paris when I was in an Uber and the driver surprised me by saying that these mobility changes needed to be done — bikes are a more efficient form of urban transport and they have greatly reduced pollution within the city.
General public sentiment also seems to reflect my anecdotal evidence. A recent Keolis-IFOP survey found that more than one in two French people (~56%) would like to see cars play a smaller role in the cities of tomorrow. Importantly, this response also seems to transcend geography and socio-economic divides. The same sentiment is found in Paris and in rural areas.
This month's mayoral election will certainly tell us something about Parisian preferences for the status quo versus change. But I'm always encouraged when issues can become less about ideology and more about whether we are accomplishing productive objectives based on, you know, facts and information.
Cover photo by Irina Nakonechnaya on Unsplash
Financial centers rise and fall with the tides of geopolitics. From the mid-1500s, the tiny Portuguese enclave of Macau served as the primary intermediary for trade between Europe, Japan and China. In the mid-1800s, it was displaced by Hong Kong, which Britain secured by defeating the Qing dynasty. Hong Kong, in turn, was overtaken by Shanghai in the 1920s, when its more glamorous though still Western-run rival became the wealthiest city in East Asia. Both were occupied by Japanese forces during World War II, and their expatriate elite were interned in camps.
Shanghai never regained its prewar status. After their 1949 victory in China’s civil war, the Communists seized foreign-owned assets, bringing an end to the dominance of one of Asia’s most prominent business dynasties — the Baghdadi-Jewish Sassoon family, known as the “Rothschilds of the East.” The exodus of wealthy Shanghainese to Hong Kong helped lay the foundations for the city’s modern-day revival as Asia’s leading financial hub.
But between the protests of the 2010s, the 2020 national security law, and the draconian pandemic lockdowns, in recent years, it did feel like Hong Kong might be at risk of losing at least some of its status as a global financial hub. According to the latest Global Financial Centres Index, Hong Kong is still ranked third, behind New York and London, respectively. But Singapore is nipping at its heels in fourth position.
Today, some are arguing that the current turmoil in the Middle East has broken the promise of Dubai as a stable, global financial capital where influencers roam freely on the beach. People are, not surprisingly, leaving in the immediate term, but will it be lasting? I think it's too early to be calling the fall of Dubai, but there's no question that this is a meaningful exogenous shock. Its real estate index fell 30% in two weeks.
History shows us that there are no guarantees. Preeminence exists until something happens, and then it doesn't. If this war becomes protracted, it will be a major problem for Dubai. Capital and talent want openness, stability, opportunity, and a favourable business environment (keep taxes reasonable and get out of the way). After all, it's arguably the main reason why people come to cities in the first place.
Cover photo by Sepehr Moradian on Unsplash
Chart via the Global Financial Centres Index
Correct me if I'm wrong, but what this tells me is that Parisians actually like the city's transition away from the car. I'm reminded of last summer in Paris when I was in an Uber and the driver surprised me by saying that these mobility changes needed to be done — bikes are a more efficient form of urban transport and they have greatly reduced pollution within the city.
General public sentiment also seems to reflect my anecdotal evidence. A recent Keolis-IFOP survey found that more than one in two French people (~56%) would like to see cars play a smaller role in the cities of tomorrow. Importantly, this response also seems to transcend geography and socio-economic divides. The same sentiment is found in Paris and in rural areas.
This month's mayoral election will certainly tell us something about Parisian preferences for the status quo versus change. But I'm always encouraged when issues can become less about ideology and more about whether we are accomplishing productive objectives based on, you know, facts and information.
Cover photo by Irina Nakonechnaya on Unsplash
Financial centers rise and fall with the tides of geopolitics. From the mid-1500s, the tiny Portuguese enclave of Macau served as the primary intermediary for trade between Europe, Japan and China. In the mid-1800s, it was displaced by Hong Kong, which Britain secured by defeating the Qing dynasty. Hong Kong, in turn, was overtaken by Shanghai in the 1920s, when its more glamorous though still Western-run rival became the wealthiest city in East Asia. Both were occupied by Japanese forces during World War II, and their expatriate elite were interned in camps.
Shanghai never regained its prewar status. After their 1949 victory in China’s civil war, the Communists seized foreign-owned assets, bringing an end to the dominance of one of Asia’s most prominent business dynasties — the Baghdadi-Jewish Sassoon family, known as the “Rothschilds of the East.” The exodus of wealthy Shanghainese to Hong Kong helped lay the foundations for the city’s modern-day revival as Asia’s leading financial hub.
But between the protests of the 2010s, the 2020 national security law, and the draconian pandemic lockdowns, in recent years, it did feel like Hong Kong might be at risk of losing at least some of its status as a global financial hub. According to the latest Global Financial Centres Index, Hong Kong is still ranked third, behind New York and London, respectively. But Singapore is nipping at its heels in fourth position.
Today, some are arguing that the current turmoil in the Middle East has broken the promise of Dubai as a stable, global financial capital where influencers roam freely on the beach. People are, not surprisingly, leaving in the immediate term, but will it be lasting? I think it's too early to be calling the fall of Dubai, but there's no question that this is a meaningful exogenous shock. Its real estate index fell 30% in two weeks.
History shows us that there are no guarantees. Preeminence exists until something happens, and then it doesn't. If this war becomes protracted, it will be a major problem for Dubai. Capital and talent want openness, stability, opportunity, and a favourable business environment (keep taxes reasonable and get out of the way). After all, it's arguably the main reason why people come to cities in the first place.
Cover photo by Sepehr Moradian on Unsplash
Chart via the Global Financial Centres Index
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