The city may have slammed the brakes on downtown London’s highrise building boom by phasing out a program that saved developers millions of dollars before they broke ground on projects.
Of the dozen highrise residential towers approved by the city in recent years, as many as eight may be in limbo because builders are being hit with a new building charge.
“It may not kill the golden goose, but it sure injures it,” said Greg Bierbaum, president of Old Oak Properties, which has a permit to build a highrise downtown.
“It was a good incentive. It worked to bring development downtown. It’s not the least expensive area to build or the one with the highest demand. Incentives were an important element. There is a lot of money on the table.”
Prior to Jan. 1, development fees for residential projects downtown and in Old East Village were paid by ratepayers. The goal of the incentive was to spur building downtown and Old East, and it worked.
Experienced developers such as Old Oak and Tricar, and new players announced plans for new towers in what looked like a condo building boom.
But as of Jan. 1, builders have to pay development fees up front and the city will reimburse them over 10 years. The fees are applied to new commercial and residential development and are used to fund services such as roads, sewers, police and fire.
Council approved the change in December as another banner year for building in London drew to a close. New figures show the city issued building permits for $1.1 billion in 2017, just below the previous year’s total of $1.4 billion.
For a highrise, development fees may range from $2 million to $4 million, posing a challenge for some builders who don’t have deep pockets.
Old Oak applied for a permit in December for a 175-unit tower at 515 Richmond St., so the company will not pay development fees upfront. Construction is likely to begin in the spring, Bierbaum said.
But he is one of only three builders to get a permit before the year-end deadline, the others being Rygar Properties for the Camden Terrace development at 100 Fullarton St. at Talbot Street, and Tricar for one at 40 York St.
The change may have cost the city a highrise proposed for 150 Dundas St., with Toronto’s Atlantis Realty saying it likely won’t proceed with the 27-storey, 200-unit project because the development fee is too steep to pay upfront.
George Anastasiadis, who owns a lot at 455 Clarence St. that has been approved for a 32-storey highrise, did not get a permit before the end of 2017 and will have to pay development charges upfront — and now doubts he’ll be able to build.
“It definitely does not help. It is extra money you have to put out and they will give it back in bits and pieces,” said Anastasiadis, owner of Mustang Sally’s restaurant and Culinary Catering.
“This makes it a lot worse . . . I just may lay low, do nothing.”
Impark is leasing his property for a parking lot.
The city changed the rules for developments downtown to save money and plan better for future development, said Gregg Barrett, manager of long-range planning for the city.
The city was never certain how many applications it would have for buildings that qualified for the exemption, so it had to estimate how much money to sock away.
Now that it does not have to estimate, and will know exactly what it has to rebate, it will see savings of $620,000 a year and one-time savings of $6 million, Barrett said.
“It provides for more certainty. The problem with the rebate program was the uncertainty as to when council would make these payments,” and how much it would have to pay.
“The big advantage is in cost savings.”
That savings will go to fund programs that will assist downtown development, such as loans for facade and building code improvements, Barrett said.
“We upped and expanded other programs. The grant is still there.”
The facade improvement loan has increased to $50,000 from $25,000 and the building code loan to $200,000 from $50,000, a city report says.
The facade work now can include awnings, signs and lighting. The building code program can be used for health and safety issues, such as removal of asbestos and mould, and improvements for environmentally friendly initiatives like green roofs.
The city also has reintroduced a “forgivable loan” program for property owners who borrow to improve their buildings. Part of the loan is returned to owners in the form of grant.
Though there are a lot of ambitious plans for downtown, only one builder, Tricar, has a crane on the skyline, having just completed Azure on Talbot and starting another at 40 York.
The builder has no issue with paying the fees upfront, vice-president Adam Carapella said.
“It helps (the city) more effectively budget for the program, while still offering an incentive to build downtown,” he said in an email statement. “Nobody can argue the fact that it is simply much more expensive to build downtown versus on a greenfield suburban site, so a program is necessary in order to have a prosperous downtown— we think this is a fair solution that benefits all parties.”
A highrise may generate about $800,000 a year in tax assessment to the city, but the city also offers developers a tax break. They don’t pay property taxes in the first year and the amount gradually ramps up to full payment in 10 years.
Tricar’s Azure tower is still under construction inside but the main tower is complete at the intersection of Dufferin Avenue and Talbot Street. (MIKE HENSEN, The London Free Press)
Coun. Stephen Turner, who chairs council’s planning and environment committee, believes there will be little fallout from the change, saying developers still will get a break, albeit delayed.
“I would be surprised if there was an impact on developers, the net effect is the same,” he said.
“They receive full compensation for building downtown. This is better for the city, better for taxpayers with the same benefit to developers.”
Turner also pointed to many proposed residential towers that have been approved and said it’s time to ease the burden on taxpayers.
“The amount of investment in the core is really important. We have seen a number of projects on the books approved.”
Vito Frijia, president of Southside Group, believes the development fee hit for builders is just the latest in a growing number of challenges.
Interest rates are going up, mortgage rules are tightened and building costs in the core are higher than other parts of the city because the sandy soil requires deeper footings, he said.
“The change in development fees is a negative from a development point of view,” Frijia said.
“No one has a crystal ball. We do not know what will happen. Costs have really gone up in recent years.”
He’s also worried that new mortgage rules making it tougher for homebuyers to qualify for a mortgage will cool the market.
“Previous councils had an incentive to build downtown because they were trying to level the playing field. It is more expensive to build downtown. That is what the development rebate is all about.”
Frijia’s proposed highrise at 183 King St. is stalled at city hall because politicians want him to preserve the crumbling building now on site.
He’s appealing to the Ontario Municipal Board a city decision to demand he preserve the building. But in an olive branch gesture, he has also submitted new drawings that show the facade of the existing building rebuilt and fronting the highrise.
That project, if it proceeds, means he will have to pay about $2 million upfront in development fees.
“It is a negative factor for downtown development. It makes downtown development a lot more expensive,” Frijia said.
“I still want to build there but it is a struggle to get it done.”
Bill Rayburn, chief administrator with Middlesex County, said the county is still weighing the impact of the development charge change on its plans for a $100-million, 30-storey, 200-unit residential highrise at 50 King St.
“The 2017 development charges policy was a consideration in our development strategy for the property, as I am sure it was for all potential development properties in the downtown,” Rayburn said by email.
He said he’s researching the issue and has asked the city for more information.
Ali Soufan, president of York Developments, agrees the fee change hurts, but he is going “full speed ahead” with plans for a tower at 131 King St., for which he is in “early stages of consultation” with the city.
“It creates a less desirable environment. If you can save $4 million upfront, it helps. It means you need serious equity off the ground,” he said.
It also may mean those who will build downtown need to be well funded, and have experience, weeding out wannabe builders, he said.
“You have to be confident you can get it to the finish line if you spend serious money upfront,” Soufan said.
The city also is changing the way industry gets a break in development charges.
The biggest change is the introduction of two different categories of industrial uses, targeted and non-targeted.
Targeted industry, larger employers, will get a 100 per cent break in fees.
Non-targeted industry include less labour intensive businesses that also use large tracts of land. They will get a 50 per cent break up to $500,000, meaning there is a maximum rebate of $250,000 and development charges beyond $500,000 will be paid by the applicant.
In a city report filed in December, targeted industries include renewable and clean technology, automotive, agri-food/food processing, defence and aerospace, life and health sciences, information technology and digital media and research and development companies.
Non-targeted industries are warehouses, transportation and logistics and truck terminal businesses.