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Globe & Mail May 13, 2000, Sat. - by John Barber
Competition? Bah, humbug. This is Mike Harris Ontario
Violating its own policies for selling real estate in an open and competitive manner, the Ontario Realty Corp. recently sold a prime downtown development site without tender for less than one-third its fair market value.
The sale occurred this January, at the same time the ORC tightened its regulations in response to charges that it gave sweetheart deals to insiders.
It was completed without competitive bids, without a marketing study, without the service of professional brokers or any of the other measures that both sets of ORC regulations mandate in order "to ensure fair, open and accessible competitive disposition processes."
Since then, the appraisal that purports to justify the sale has gone missing from ORC files, according to spokeswoman Judith Baird.
Cadillac dealer Clarke Addison of Addison Properties Ltd. bought the property, the site of his used-car lot on the east side of Bay Street, for $2-million -- half-a-million dollars less than the government received three years ago for a nearly adjacent property that is less than one half its size. Addison was given the exclusive right to buy the property -- as well as the site of its new-car dealership across the street -- because it has been a long-term tenant of the government, according to Ms. Baird.
"It's like a tenant buyback," she said, adding that such sales are rare. "It's not a normal practice."
Indeed, the much-touted "guidelines and procedures" the ORC adopted to ensure competitive bidding specifically ban such practices. They make no exceptions for favoured tenants, allowing non-competitive sales only in particular circumstances, such as when the property is landlocked or being sold to another government agency.
In the absence of such conditions, property can only be sold uncompetitively when one or more cabinet ministers "considers it to be in the Crown's best interest to sell the property to a specific party."
Management Board chairman Chris Hodgson, minister responsible for the ORC, "was not involved in [the Addison sale] in any way," according to Ms. Baird.
However it may have come about, there is little question that Mr. Addison made an exceptionally good deal on the purchase of his used-car lot. His is now the last patch of undeveloped land inside the canyon of high-rise condominiums that runs along booming Bay Street between Bloor and Gerrard. It is vacant except for one trailer, uncontaminated and surrounded on all four sides by public roads. It also features even more permissive zoning than neighbouring sites where workers are currently building 30-story condominiums.
The only wrinkle preventing immediate development of the site is a restrictive covenant the ORC attached to the title that prevents Addison from registering a condominium there for a period of three years.
The covenant was included to protect the government's position in the development of the Opera Place complex immediately to the north, according to Ms. Baird. Because the government will not be fully paid for the Opera Place lands until the last condo there is built, she said, the ORC attached the covenant to prevent the immediate appearance of more apartments in the neighbourhood.
Several developers contacted by The Globe and Mail, all of whom are active in the market for high-density residential sites in central Toronto – and all of whom requested anonymity -- said the three-year covenant would have little effect on the site's value. Its easy conversion into a commercial parking lot could make it profitable to hold for a long term, one said.
As soon as it bought the site, Addison Properties leased it to the dealership, Addison on Bay, for a three-year term.
No other nearby properties have sold for such a low price in recent years. Three years ago, Diamante Development Corp. paid the ORC $2.53-million to buy a government property two doors down the street, on the northeast corner of Bay and College.
The property is slightly more than one-third the size of the Addison site – and before building a high-rise condominium there, Diamante spent $450,000 to tear down the abandoned office building that stood on it. Since then, other fair-market transactions show that the price for zoned land on Bay Street has risen steeply.
Two years ago, the Edilcan Group bought 1115 Bay St., site of the former La Scala restaurant -- and even smaller than the tiny Diamante property – for $5.7-million.
The developers contacted by The Globe and Mail expressed shock that the Addison site went for such a low price. All were surprised to learn it had even sold.
"That's a little light," one said, when informed of the price. "It's very light, in fact. That site's got 7.8 times coverage. I mean, wow. That's a very low price."
The developers said that the price of high-density residential land on Bay Street currently runs from about $30 to more than $40 a "buildable" square foot.
They determine a property's maximum number of buildable square feet – a figure that is sometimes expressed in terms of the maximum number of apartments permitted -- by multiplying the total area of the site by the permitted density.
The Addison site, which runs almost 300 feet along Bay Street, encompassing a full block, is zoned for 7.8 times coverage. That means 246,323 square feet of apartments can be built on it, up to a height of 61 metres (between 20 and 25 storeys).
Diamante paid $28 "per square foot buildable" for 801 Bay in 1997, according to RealNet Canada, an industry tracking service. Edilcan paid $44 for its more desirable site a year later. But on Jan. 28, 2000, Addison paid the people of Ontario less than $8 a square foot buildable for the last empty development site on Bay Street.
At $40 a foot, the site would be worth more than $10-million. At $35, it would be worth $9-million.
Developers and city planners caution that such estimates are provisional, because the nature of surrounding development is often more useful than official density allowances in determining maximum coverage. Indeed, few buildings are erected in Toronto without the aid of rezonings that increase permitted density.
As built, for instance, the Diamante condominium achieves a density of more than 10 times its lot size.
Speaking on condition of anonymity, the planners said that the Addison property could easily earn extra density, both because of its location near condominiums that rise more than 30 storeys and its unusually large size and easy accessibility from four sides. The site's ultimate density could easily rise above 10 times, they said.
At the same time as he bought the used-car lot, Mr. Addison also acquired the property housing his dealership across the street, a historic building erected in 1925 as the Toronto showroom of Colonel Sam McLaughlin, founder of General Motors Canada.
Addison paid the ORC $4.5-million for the dealership, which the company has rented from the government for more than 50 years, according to Ms. Baird. But before the deal closed, the ORC spent hundreds of thousand of dollars rebuilding and restoring it to historic standards.
An appraisal valued both parcels together at $6.9-million, according to Ms. Baird. Unfortunately, she added, the document appears to have gone missing from ORC files.
Mr. Addison did not respond to several telephone calls over three days from The Globe and Mail.
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