Steve Ladurantaye

I tried to contact Adam Vaughan for my Peter Freed profile, but we didn’t connect. Both men have been quoted saying how great the other one is – they have a good working relationship for a developer and councillor. That said, there are obviously some hot spots. Here is what Vaughan would have said, had we connected (I’m not blowing any confidences here, he posted this under the story on the Globe’s site):

Peter’s story is an amazing one and his projects as a cluster are having a huge impact on the ‘hood. But as in all stories there is a pre and a post history to consider and I wish I coulc have directed you to residents on either side of the “Freed Era”.

Jane Jacobs set the table with a crew of creative politicians and architects long before Freed even got started in the development business. Developers like Mike Emory at Allied Properties and Howard Cohen at Context were the pioneers. They took the first risks after Free Trade cleared out the textile industry from the warehouses in the late 80′s.

It was the seminal “Two Kings” report under Mayor Barbara Hall that unleashed this areas potential while protected the zones heritage and human scale. If “freed” to his own devices Freed would do damage to a lot of what attracted him to the neighourhood in the first place. A great deal of public effort and community pressure have made his buildings better. This in no way diminishes or scoffs at his entrepreneurial skills. Freed is easy to admire. But credit on the communities capacity for revitalization is shared.

As for the next generation of development Freed’s business model is  about to be measured by a different set of standards and some difficult challenges lie ahead. Several of his buildings are now complete and people are living in them. Freed believes that he has created this neighbourhood and in some ways he deserves credit, but just as there were residents living here before Freed, and developers on the ground (and in fact in the ground) before he picked up a shovel it is impossible not to note that Freed is operating now in a different environment.

People have brought his products, his “lifestyle” projects neighbour the residential communities he has created. And as a result his construction sites and new projects are now popping up in a much more complex community.

His biggest problems may however be a result of his success. There are a lot of other developers now active in the area. Every owner of a parking lot of rundown commercial property, even some of the folks in the Victorian homes on local streets is playing the market. Speculation is driving land values up. With that property taxes driven by the same market values are inflating. Heritage buildings are seeing tax bills in some cases jump from $8m to $23m in a single year. With locked in leases property owners are selling to avoid bankruptcy. New owners buy knowing the will have to demolish and redevelop just to pay the taxes.

The new land values and the hot condo market have temporarily sparked a real estate bubble.

Developers are demanding more height and density to cover costs, they find it cheaper to demolish heritage buildings that creatively re-use them. Corners are cut on construction. New condo quality is lower and buyers tend to be speculators rather than residents. Higher rates or renter to owner ratios in newer buildings undermine the stability and maintenance models that make condos successful communities unto themselves. Additionally the pressure to build quick often means that the construction sites violate start times and noise by-laws, sites are not well managed and dust dirt and lots of trucks parked everywhere drive new and old residents nuts.

The “lifestyle” changes are also raising concerns. The bar on top of the Thompson has brought hundreds of late night taxis to quiet residential streets. Honking and shouting at 3am is now a problem. Beer bottles are being tossed from the rooftop lounges and the condominium documents that govern shared costs between the businesses in a building and the residential components have not been thought through to the disappointment to condo owners. Costs are rising after purchase without warning, and promised amenities  are being pulled without notice.

Freed is not to blame for all of this but needs accept some responsibility. He moved in to an exiting community. He did not create it. He has helped even led the transformation of the neighbourhood and for that he deserves credit, much good, some bad. The future is a question mark.

Freed’s business model must now adapt to the new realities. His claim to have created a neighourhood notwithstanding, once people move into a community it becomes theirs. All of theirs. Peter Freed had a few neighbours when he arrived and he has opened the door to new neighours, but now the neighbourhood is full of people. Everyone thinks the community belongs to them and everyone is right. Freeds next challenge will be to see if he can get along with the folks next door. If he can he may well remain the King of King. If can’t he may spark a revolt amongst the subjects.

Long before Peter Freed became the King of King West, he was picking up scraps of garbage in a desperate bid to break into the construction industry.

It was 1989 and he’d just dropped out of McGill University, opting to run a toilet paper and cleaning supplies distribution company full-time rather than expose himself to the rigours of English literature and Psychology 101. But what he really wanted to do was build houses, and a family friend offered him the chance to learn the trade from the ground up if he was willing to volunteer as a labourer.

Read the story in the Globe and Mail

“I worked three months for free and then made $325 a month for three months,” says Mr. Freed, the president of Freed Developments Corp. “It was the only way they would hire me.”

He wasn’t even allowed to swing a hammer, but he now rules over a development empire that employs 600 people and has built almost a billion dollars worth of condos in the now-trendy King West neighbourhood. And there’s more to come – late last month, the Ontario Municipal Board ruled he could build ever higher in the area, granting developers permission to complete projects almost 60 per cent higher than originally permitted in the official plan.

They may be the backbone of his expanding empire, but as Mr. Freed sits in the bar of the Thompson Hotel, he’s quick to point out he’s moved beyond the staid condo market – Freed Developments is a part owner of the Thompson Hotel, five restaurants, almost 1,000 parking spaces and a Muskoka golf course that has a large residential component.

With another billion dollars of projects in the planning phase, he’s changing his focus from being a neighbourhood condo developer into growing what he likes to refer to as “Canada’s first diversified lifestyle company.” He imagines a world where his condo owners go for dinner in his restaurants, drink in his bars and buy memberships to his golf club.

“This has gone so far beyond what anyone could have envisioned,” says Mr. Freed, casually dressed, as he often is, in jeans and a sports jacket. “You just don’t see other companies that are able to offer such a range of lifestyle choices. I’m certainly not aware of any. But that’s what this is all about.”

From backyard forts to condo towers

Hazel Freed often tells the story of how her young son would boss around other kids in the backyard, getting them to build him an awesome fort while he supervised. With a real-estate lawyer for a father and a comfortable childhood spent in Forest Hill, Mr. Freed didn’t bother much with school, preferring to spend his time playing hockey with his friends and chatting up the girls.

“I wasn’t a bad kid,” he says. “But I always liked having a lot of fun, and school was a means to an end. I got the grades I needed, but it was more of a social platform for me.”

The 42-year-old hasn’t changed much since. He runs a company that generates hundreds of millions of dollars in revenue, but he isn’t often seen in a suit. He’s a regular fixture at the bars he owns, and as he sits down to dinner at the Scarpetta restaurant in the Thompson Hotel, it’s clear that he can work his way around a wine list.

His party schedule is down to a few nights a week, and he increasingly finds himself detached from the demographic he’s targeted since focusing on King West – it’s difficult to keep up with the young, wealthy Bay Street types he depends on to earn a living.

And there are plenty of opportunities – the Thompson Hotel has become a late-night hot spot since opening last year. Its rooftop patio is the most exclusive in the city, and celebrities such as Drake and Richard Branson are frequently spotted sipping cocktails in the lounge among the well-dressed twentysomethings out for a good time.

“I’ll tell you, there are plenty of nights I’m happy to be at home and in bed by 8 p.m. With this type of business you could be out every night, all night, if you wanted to,” he says, adding his one-year-old son with wife Lindsay has also changed his priorities. “You need to be careful not to get too caught up in all of that. Those days are mostly over for me.”

A costly learning curve

After his six-month stint cleaning job sites in the early 1990s, Mr. Freed went to work for a developer who was building 100 houses in Markham. He acted as site supervisor during the week, using what he had learned as a labourer for guidance. On weekends, he’d work in the site trailer selling the houses to any customers who happened to drop into the centre.

Ready to strike out on his own, he started assembling land in North York and Brampton, and used a connection to win an introduction to the well-connected Goldhar family, whose name is now synonymous with the big-box development company SmartCentres Inc. Mr. Freed would put deals together for custom-built homes, and Leo Goldhar would provide the financing needed to start construction. Together, they’d build about 1,000 homes over five years.

“I went out and found the deals, managed them, got zoning approvals in place and they’d bring in the financing,” he says. “I brought opportunities to them, and of course they are opportunistic. They liked me, so they cut me a break.”

Growing in confidence, he made what would turn out to be the biggest mistake of his young career when he raised $3-million from investors to open a warehouse store called Builders Unlimited in 1997. He brashly predicted it would render Home Depot obsolete with its “taste-educated, install-it-please niche,” but a lack of financing drove the store out of business shortly after it opened.

“The store was basically in business for three minutes,” he says. “It’s fair to say it did not work out as planned. But I did learn a pretty valuable lesson about the importance of proper financing, you can definitely say that much.”

Ambition, meet humility

Builders Unlimited was the kind of rash mistake that Stephen Pustil saw coming when he agreed to allow Mr. Freed to clean his job site all those years ago. Mr. Pustil, president of Penwest Development Corp. and a long-time developer, knew Mr. Freed as a friend of his son’s and has served as his mentor over the last two decades.

“Any of his failures have been because he’s so ambitious,” says Mr. Pustil. “He’s always been very impatient, trying to get to the next level as fast as he could. I’ve always been about pulling on his reins – allowing his entrepreneurial spirit to grow but making sure he did it all within the confines of reality.”

One of the key lessons Mr. Freed has taken from Mr. Pustil is to partner on the projects that he doesn’t understand completely. That’s how he met Tony Cohen, a partner in the ultra-trendy Hotel Le Germain, who Mr. Freed recruited to help him bring the Thompson Hotel to Wellington Street West.

“It’s actually one of the things that I like best about Peter – he knows what he doesn’t know,” says Mr. Cohen. “Maybe in the past he thought he knew everything, I have no idea. But I can tell you now, if you can make an argument about something, he’s willing to listen.”

The department-store failure may have been an embarrassment, but it did nothing to derail his ambition. He’d been visiting King Street bars since the mid-1980s, and was growing more and more convinced with each visit that the area – which, after decades of industrial use, was rezoned to allow for more residential growth – was ripe for redevelopment.

In 2003, he bought a site and began to develop what is now 66 Portland St. – a nine-floor, 85-unit condo that was completed in 2006. He’s launched eight more since, finding a target market among the city’s young, moneyed crowd anxious to live close to the core and in the middle of a burgeoning entertainment district.

“I spent a lot of time down there on the weekends visiting the bars,” Mr. Freed says. “It was a really rough area, everybody knows that. But I thought if we could do one building, even if it was risky, we’d know if we were right. But every year that has gone by, we’ve been proven more right.”

That said, he cares less about being right than he did when he started his career.

He developed testicular cancer when he was 30, and a little over a decade in remission hasn’t dulled the memories of six months of chemotherapy. As he prepares to announce a slate of new projects – he hints broadly that he’d like to package his income-generating properties into a separate company – he often reminds himself that there are other things in life that you can’t control.

“It really does teach you not to fret the small stuff,” he says. “You reflect back on any of the bad things that have happened or will happen, and all you can think is ‘You know, life really isn’t all that bad.’”

 

New home buyers in the GTA are being saddled with hidden fees that threaten to price buyers out of the market, with as much as 30 per cent of the purchase price going directly to government coffers.

But the construction industry is pushing back, saying the municipalities’ appetite for development charges could derail the new-housing market by driving the average price beyond the means of most buyers just as interest rates are about to move higher.

Read the story and comments in the Globe and Mail

The charges have more than doubled in the past five years in many communities around the Greater Toronto Area, according to a pair of reports from the industry that will be released on Thursday.

Development fees are levied to raise the money for the municipality to provide infrastructure – such as roads and sewers – to support the housing. However, the cities have also funneled some of the cash toward projects such as libraries and community centres, which developers say have little to do with the actual construction of a house.

Homebuilders – who have become increasingly vocal in their critique of government policy as the new-housing market shows signs of cooling – said governments have been able to pile costs on consumers over the past several years because interest rates have been low and homes have been relatively affordable.

But with interest rates set to move higher in the next year and more buyers conscious of costs, they said, the full effect of a decade of rising fees could sideline an industry that has been crucial to the region’s economic health.

“Municipalities have increasingly looked to development charges for additional revenue because these costs are indirect and hidden,” states a report by the Residential and Civic Construction Alliance of Ontario.

The report estimates that home buyers in Oakville pay an average $50,548 in development charges, with most cities surrounding the City of Toronto charging between $30,000 and $50,000 for each new home built. Toronto’s average take is $12,281 per house, with development charges set to rise this year after a two-year freeze.

“We’re in a different position in the City of Toronto because we aren’t building large subdivisions and most of the infrastructure for new homes is already built,” said special projects director Joe Farag.

In Vancouver, development charges average $23,418. In Calgary, they are $7,475.

These figures don’t include the additional costs added by the federal goods and services tax, or additional charges brought on by the new harmonized sales tax in Ontario and B.C. With those factored in, a report from the Residential Construction Council of Ontario estimates that 30 per cent of a new GTA home’s cost is now determined by government charges. Canada Mortgage and Housing Corp. estimates the Canadian average is 13.4 per cent.

Oakville Mayor Rob Burton said the city charges developers the maximum amount allowed under provincial legislation because development fees haven’t covered the cost of growth in more than a decade. “Mike Harris gutted them in 1997,” he said.

“So local property taxpayers subsidize billionaire developers whose subdivisions make higher profits by not paying for the hospitals, transit and other infrastructure they require,” he said. “Oakville’s council is proud to have development charges that capture the maximum permissible amount of the costs of growth.”

The builders agree that the shifting of some provincial responsibilities to the municipalities led to rapidly escalating fees in the GTA, but say they should not have to bear the brunt. The president of the Canadian Homebuilders Association said builders can’t simply absorb the costs, because their margins have never been thinner.

“Profit is not a dirty word,” said Vince Laberge. “Politicians need to raise property taxes instead of having a social agenda funded by the new home buyer.”

The reports recommend the province pay a greater share of the cost of municipal infrastructure such as fire stations and libraries, and provide more transit funding, and that municipalities implement user fees in place of development charges wherever possible. If not, they warn, development could be reduced in coming years.

So what does a $17.5-million mansion look like? The Toronto home that recently fetched that price is 15,000 square feet and backs onto the Rosedale Golf Course. The selling agents were from Chestnut Park, the buying agents were from Sotheby’s International Realty Canada.

Here’s the brochure. You’re too late to buy it, though.

It’s the ultimate house flip.

A historic stone mansion at 174 Teddington Park Avenue has been sold for $17.5-million, just three years after investors paid $13.5-million for the property and sunk another $5-million into renovations.

Kris and Margaret Isberg also severed a 100 x 190-foot lot from the site as part of the sale, squeezing another $6-million out of the property and ensuring a tidy $5-million profit on their investment.

Built in 1931, the 15,000-square-foot home was designed by architect John Lyle for industrialist Frederick Cowan. Mr. Lyle’s work is hard to miss in Toronto – it includes Union Station, the Royal Canadian Yacht Club and the Royal Alexandra Theatre.

Read the story (and comments) at the Globe and Mail

It’s in an area north of Lawrence Avenue and east of Yonge Street called Old North Toronto, considered one of the most elite districts in the city. Neighbours include Four Seasons Hotels and Resorts founder Isadore Sharp, and the upscale Four Teddington Park Avenue retirement home.

The house – which neighbourhood children have always referred to as “the Castle” – features eight bedrooms and 11 bathrooms, a library and a coach house which at 1,000-square-feet is larger than most Toronto condos. Anyone looking out the window would see not only the heavily manicured lawn and gardens, but the 18th hole of the Rosedale Golf Club.

Globe and Mail photo gallery

W. E. Phillips of Argus Corp. once called it home, and its most recent live-in owner was Steve Stavro, former chairman of Maple Leaf Sports and Entertainment.

The Isbergs – Mr. Isberg runs K.P. Isberg Construction and Mrs. Isberg is the former president of bond-manager PIMCO Canada – bought the home with the intention of modernizing it and selling it for a profit, and their efforts were rewarded just months after work finished late last year.

A European buyer put down an offer ahead of “a handful” of interested locals, and intends to immigrate to Canada because of the deal. While the buyer wishes to remain anonymous, he had been considering a house in Boston before opting to invest in the relative stability of the Canadian real estate market.

While there are no statistics to back up the frequent claims, real estate insiders suggest that foreign buyers are increasingly drawn to the Canadian market because prices have rebounded from recessionary lows and the country is seen as a safe haven for investment capital.

The Teddington Park listing saw inquiries from agents in Germany, Malaysia, China and the United States. How big an effect these buyers are having on the market is difficult to gauge – some agents suggest as much as 10 per cent of Toronto’s luxury house market is comprised of foreign buyers.

“Nobody really knows how many foreign investors there are,” said Barry Lyon, senior partner and president of real estate consulting firm N. Barry Lyon Consultants Ltd. in Toronto. “But these are worldly buyers – they like the calm and safety of Toronto, they like the ongoing growth. And they certainly like the cosmopolitan nature of the city.”

A ReMax report issued this week shows that on an annually compounding basis, prices in Greater Toronto have gained 5.35 per cent a year since 2000, at a time when stock markets have seen harsh drops and prices in the U.S. housing market fell by as much as 50 per cent.

Sotheby’s International Realty Canada president Ross McCredie said high-end homes have drawn the attention of international investors who are looking to invest in hard assets as a means of diversification, and the market has picked up momentum in the past several months.

“I’m not saying there are busloads of foreigners driving around and buying properties,” he said. “But I’ve dug into who these buyers are – they’ve already owned a few houses here, they have family here. They’re willing to look across Canada and take their time to find something they’d like to live in, because Canada is still much more affordable than many other countries.”