Bad News – Toronto Has Become a Developer

I wrote an article about how the Collingswood NJ municipality decided to become a condominium developer and ended up holding the bag because the condominium market crashed. I restate that municipalities should never be residential condominium developers.

The role of a municipality is to direct the desired developments through zoning and legislation, and to leave the risk associated with the project with the developer (see recent crash in US housing to confirm risk exists).

Municipalities should never be in the business of risk. They should be in the business of service and infrastructure, not gambling – as in “gambling if the condo market will still be good in six years”.

Six years is the projected timeframe it will take to complete the – now largest residential planned condominium – development.  The project, which will be 20% city owned and 80% Tridel owned, is a 75 story development at York and Harbour, near the railway tracks.

Mayor Rob Ford said the new joint venture represents a creative way of solving the city’s financial problems. Cities don’t need creative – they need solid and sustainable. Rob’s brother, Doug Ford – who also is elected to council – sits as vice-chair of the Build Toronto, the city arm that is spearheading this initiative. He says the opportunity represents a cash windfall:

When there is that much profit sitting on the table, we wouldn’t be very prudent business managers if we turned our head on this opportunity

To add, the Build Toronto’s chief executive Lorne Braithwaite is quoted as saying:

The market is hot as a pistol and we are about to generate funds for the city and create a fantastic new development

So now we have “a creative response” that “represents a sure thing” that relies on a condominium market that in six years remains “hot as a pistol”

I haven’t heard such a combination of positive will and high risk since friends told me to buy RIM at $140/share just three years ago. Thankfully that sure thing in a hot as a pistol telecom market panned out. In only three years it’s lost 88% of its value. One can only hope it keeps performing as well for the next three years!

I didn’t buy any RIM, and I don’t buy into a municipality becoming a developer.