A developer who had a new vision for downtown Hamilton’s City Centre Mall says “a pause” on the multi-million dollar rebuild is a “sign of the times.”
IN8 Developments president Darryl Firsten says he’s still “super excited” about the project but pre-sale tests – typically required for lenders to approve construction loans – just aren’t there in the current real estate climate.
“The issue is we’re condo builders, and to build condos… we have to sell a certain amount of condos, and there is just no market right now,” Firtsen explained.
He added that current mortgage rates are “97 per cent” the reason for the hold-up and said it’s not something unique to the current condo-market across Canada.
“Buyers can’t make economic sense of it, given what their mortgage rates would be and their cost of carrying … relative to either the rents they collect or relative to their income if they are an owner occupying (it),” Firsten said.
He went on to say the country’s construction labour shortage is a “limiting factor” in procuring concrete orders and services for drywalling and electrical.
IN8 proposed the ambitious re-development of the property on James Street North between King Street East and York Boulevard in 2019, about a year after CBRE Ltd. put the 3.5-acre property up for sale.
The retail landmark was built in 1990 by Cadillac Fairview and originally known as the Eaton Centre.
It included more than 550,000 square feet of commercial area.
In a 2019 interview, Firsten told Global News that the plan is to knock down the current structure and build five residential and commercial towers in stages to the tune of about $700 million.
However, he also said it wouldn’t “happen soon” and was likely more than two years down the road since the company was looking to do a consultation with Hamiltonians to see what they wanted in a new downtown development.
The current plan is a multi-year build involving four towers in four phases, producing some 2,000 units. The project’s estimated cost stands at just over $1 billion.
Co-founder and senior researcher at Toronto Metropolitan University’s Urban Centre for Research and Land Development Frank Clayton says IN8’s predicament is not unusual and that he’s seen many projects paused in the same manner for the same reasons Firsten outlined.
However, Clayton believes interest rates will come down eventually, incomes will grow, and prices will once again rise allowing builders to make money again.
“So right now, yeah, it’s temporarily putting pauses on projects, but you don’t see anybody selling their portfolio of land or portfolio sites,” he said.
“They’re hanging on to them. They’re just playing a waiting game.”
Firsten said the current pause has created an opportunity to look closely at the design of the project and “refine it a little bit.”
“Not big things that you’re really going to notice, more like entrances, efficiencies of loading, parking, things like that,” he said.
“More utilitarian things to make the building more functional in terms of its basic design for towers. The height of the tower, the number of units, that’s not changing.”
Firsten said IN8 doesn’t want to create a “risky hole” in the city centre and has opted to just leave the structure as it is instead of starting with an opening phase that would begin with demolition.
“We could start demolition, that is true, it’s not a big cost to that,” he said.
“The issue is we don’t know when mortgage rates are going to come down and when the condo-buying consumer is going to show up again. What we don’t want is to have a big hole in the sand of Hamilton.”
He said when market conditions ease, the development will take about a decade via some sort of “overlap” in the build.
“It could be 10 years, eight to 10 years till the end. But the first one (phase) will be done within about four years of starting construction.”
Canada’s housing market cooled further in November
In an update on Thursday, Canada’s real estate association said the housing market cooled further in November as sellers joined buyers on the sidelines.
The Canadian Real Estate Association (CREA) hopes that activity will heat up in the spring, perhaps off the back of interest rate cuts in the new year.
Sales activity in November slowed nearly a percentage point month-over-month, CREA said in a release.
The association said that the number of newly listed homes also declined for the second month in a row.
Meanwhile, the Realtors Association of Hamilton-Burlington (RAHB) also reported declines in November sales, making it one of the weakest Novembers since 2010.
Sales did go up for apartment-style homes last month, but there’s still a 10 per cent decline year over year for that type of dwelling so far in 2023.
“Persistently high lending rates are not only impacting demand but have also supported gains in new listings over the second half of the year,” RAHB president Nicolas von Bredow said in his November statement.
“Consumers are generally seeking out homes in the lower-price ranges.”
‘Still too early’ to cut rates, Bank of Canada’s Macklem says
On Friday, the Bank of Canada’s governor pushed back on expectations for interest rate cuts citing inflationary risks still exist going into 2024, including conflicts in the Middle East and Europe.
“When it’s clear that inflation is on a sustained downward track, we can begin discussing lowering our policy interest rate,” Macklem said at a year-end speech to the Canadian Club in Toronto on Friday.
“We don’t need to wait until inflation is all the way back to the two per cent target to consider easing policy, but it does need to be clearly headed to two per cent.”
The Bank of Canada held its benchmark interest rate at five per cent earlier this month, its third consecutive decision to hold the line at current levels.
Despite warnings from the central bank that rates could rise higher still, market watchers have begun pencilling in rate cuts for as early as the second quarter of 2024.
– With Files from Craig Lord