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Next subway stop: Vaughan

‘This physically connects York (University) to a bigger network, a larger community.’

Apr. 11, 2006. 05:42 AM
TONY WONG
BUSINESS REPORTER

With an unprecedented real estate boom transforming the Greater Toronto Area over the last few years, what more could a developer ask for?

For a few lucky � some would say smart, or even politically astute � landowners, it may be getting better still. Happiness is having a brand new subway line right at your doorstep.

Simon Nyilassy became � literally overnight � one of the big beneficiaries last month when the provincial government issued the blockbuster announcement that the subway line would be extended to Vaughan.

The chief executive officer of powerhouse retail mall owner Calloway Real Estate Investment Trust finds himself in the epicentre of what has bloomed from a desirable commercial area into some of the top commercial land in the country.

“This is a tremendously exciting opportunity, and the subway will be a catalyst for the area,” he says. “And we find ourselves right in the middle of it all.”

Real estate, after all, is all about location, and, with a new office overlooking the Vaughan corporate park, Nyilassy isn’t kidding. He is as close to ground zero as you can get.

Because of the subway, his company is far more bullish on the area, and will potentially invest up to a billion dollars, he said in an interview. That staggering sum would make Vaughan the single most important piece of the Calloway portfolio, and the confidence could spark a stampede of other development.

In a surprise announcement last month, the province said it was putting up $670 million toward extending the Spadina subway line through York University and into the “city above Toronto,” linking the 416 and 905 area-code regions.

Nyilassy isn’t the only winner, of course. York University, the City of Vaughan and a string of powerful developers are breaking out the champagne, or perhaps an extra crane or two.

Without the subway, the neglected northwestern region seemed destined to be disconnected from the rest of Toronto by clogged roads and an overloaded bus system. The potential of being linked to a bigger city and the lure of increased density has meant that the area � now a sometimes drab hodge-podge of industrial, retail and residential buildings, with a massive university campus in the middle � will now probably undergo major transformation.

Since the announcement, Vaughan’s phone has barely stopped ringing with calls from developers. It’s music to the ears of Frank Miele, commissioner of economic development and perhaps the city’s biggest cheerleader.

“To imagine is everything, and, boy, did we imagine,” Miele laughs. “Now we have people knocking on our doors.”

For more than eight years, Vaughan has been trying to cobble together a 243-hectare development called the Vaughan Corporate Centre, from roughly Highway 407 north to Highway 7, with the centrepiece being a 51-hectare downtown. Miele envisions a downtown filled with restaurants, hotels and cultural venues.

It was a gamble. Most insiders thought the subway at best would stop at York University, not continue all the way north.

“We can promise the world � but we have to deliver first,” says Miele, who estimates 60,000 jobs will be created in the development.

Nyilassy will probably be responsible for more than a few of those jobs.

As a developer with 20.2 hectares at Keele St. and Highway 7, across the street from Miele’s project, Nyilassy finds himself with property that is far more valuable than it was the day before the March 23 announcement: 20 to 50 per cent more, by some estimates.

With a Wal-Mart shopping centre already on the site, Nyilassy’s original 600,000-square-foot project now has the potential to become more than 4 million square feet of space.

“The subway has really changed the dynamic of the project,” he says. “We’ve moved from a pretty traditional outdoor-plaza concept to something much more large-scale.”

Over the next 10 years, Calloway, which controls a substantial real estate portfolio of about $2.5 billion, intends to invest up to another billion dollars, which will make the REIT a major player in the area. Calloway will probably invest in a mix of retail, office and residential space.

To end near Nyilassy’s property, the subway will first snake north from Downsview station, with a likely stop at Finch Ave. and Keele St., giving a tremendous boost to the retail strip across from York University. Moving north, the subway will stop inside the campus of Canada’s third-largest university. That’s making university officials giddy at the possibility of building a research park.

“This physically connects York to a bigger network, a larger community,” says Bud Purves, president of the York University Development Corp. “It also means that the university will continue to attract the best and the brightest.”

Purves, a long-time Toronto developer whose last job was, among other things, running the CN Tower for TrizecHahn Corp., is now responsible for overseeing the university’s prospects for development.

The university has 16.2 choice, developable hectares on the north side of the campus towards Steeles Ave., and another 8.1 hectares toward Finch Ave. to the south.

“It’s certainly an exciting time, because we’ll be looking at all potential types of uses for the area,” Purves says. One option will be to house a kind of scientific “research park,” geared toward research and development, he says.

“We’re not sure what form it will take, but it will be easier to attract researchers now that you’re connected to the rest of the city. However, it’s not something we will approach in a glib fashion. We’ll examine everything with as much input as possible.”

Another plus for the university is that thousands of buses stop on the grounds every day, contributing to pollution and congestion. A subway will greatly improve the quality of life for students, Purves says.

And of course, increased land values don’t hurt.

“What this means is that it enhances York’s ability to access land value in the future,” he says. “It’s money in the pocket for York.”

Other winners on campus include homeowners living at the Tribute Communities development at the university, where the last of more than 500 homes are being completed. Starting prices on the properties ranged from $279,000 for townhomes to $458,990 for detached styles.

Residents will probably find that the values of their homes are on the way up, although increased density can be a double-edged sword. Residents along the Sheppard subway line, which opened in 2002, have already seen the results. And not everyone is pleased.

Along the five-stop line, 10,000 new condo units have been approved, representing about 30,000 people. The subway, meanwhile, has been criticized for being half empty as people still continue to take cars, further clogging the streets.

Further north, just across the street from York on Steeles Ave., Milestone Group has built a 100,000-square-foot office building on a 16.2-hectare site and is now leasing another new 150,000-square-foot office building.

“There is no question the subway coming here has been a huge plus,” president Chris Holtved says.

Holtved, like Purves, cautions against irrational expectations. After all, the subway is still years away from being built. He doesn’t expect the news to affect leasing on phase two of his current project, especially because of the long timeline. Still, the impact is bound to come.

“Office-vacancy rates are already tight across the GTA, but this makes long-term prospects for the area especially strong,” Holtved says.

The final stop of the subway is expected to land at the Vaughan Corporate Centre, right across the street from property owned by Calloway.

Calloway and First Vaughan Investment, a small group of private investors that includes Toronto developer Mitch Goldhar, own a good chunk of the land in that area.

Goldhar, who has long been bullish on Vaughan, helped bring Wal-Mart stores to Canada through his First Pro Shopping Centres. He is also the largest shareholder in Calloway.

Still, Nyilassy, a former executive at First Pro, remains the ever-cautious CEO, especially when making forecasts.

As an income trust, his company invests in and owns properties, with revenues coming mainly from property rentals. When the area is fully developed, the CEO estimates, he will make a solid but not spectacular 7 per cent return on the properties.

“We’re not going to make out like bandits on this, but we are hoping to do well,” he says.

And there is another thing. Canadian developers are all too familiar with the cautionary tale of the rise and fall of the powerful Olympia & York Developments Ltd, owned by the Reichmann family, especially when it comes to subways.

Heeding the call of then British prime minister Margaret Thatcher, developer Paul Reichmann decided to build a British version of Wall Street on the derelict docklands area of London.

The British government promised to provide a public-transit link � but it didn’t happen in time. The Reichmanns’ company invested billions into the project, but workers couldn’t get to the isolated area. Canary Wharf started the economic slide that would lead to the unravelling of the company.

So, some developers would like to see a spade in the ground for the subway before they start building.

“Anything can happen, but this is as good a commitment as you’re going to get,” says Vaughan’s Miele.

Still, developers such as Nyilassy know they could hit bumps along the way, especially when it comes to political promises. His job is to anticipate the worst, but plan for the future. For the time being, the future looks pretty bright.

“We’re seeing this as a tremendous opportunity to create a vibrant mix,” says Nyilassy. “The subway has brought about that possibility, not just for us, but for a lot of investors who see this as a very significant area, and I think we will all ultimately benefit.”




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