When Philip Reichmann announced this week he was selling it all, real-estate watchers could be forgiven for thinking the move signalled the last gasp of a fading era when developers dreamed big and took chances.
Mr. Reichmann, after all, was the only man brave enough to build an office tower in downtown Toronto in the past decade. His O&Y Properties Corp. put up the Maritime Life Tower at Queen and Yonge Streets at a time when most thought high vacancy rates and rising costs made building downtown unworkable.
Now O&Y is on the block with a price tag expected to exceed $2-billion. The massive portfolio includes First Canadian Place, the Reichmann family's trophy tower, and 23 other prime properties. Most expect a lively bidding war that will end with more skyscrapers in the hands of pension funds. But even as Mr. Reichmann heads for the sidelines, rumours are swirling that the long lull in downtown office construction is about to end.
If they're right, it'll signal a reversal of prevailing trends that have seen commercial real estate in Toronto -- and across Canada -- become a careful business driven by conservative investors and lenders with long memories.
"I wouldn't be surprised to see it start within the next 12 months," says Paul Morse, a senior vice-president at Royal Lepage Commercial.
Others are not so sure, especially given that vacancy rates for prime downtown buildings are hovering at 12 per cent. "It's a pretty high-stakes game given the returns," says one industry executive who asked not to be identified.
If someone is going to build office space in downtown Toronto, family-owned Menkes Developments Inc. is at the top of the list.
The Menkes family did a deal last summer that is the stuff of legends in real-estate circles. Before it could even ask for formal bids, the private company sold its new office tower on Yonge Street north of Sheppard Avenue to German investors. The deal was completed in under eight weeks -- an exceptionally quick close for a commercial property. The German buyers, a subsidiary of Deutsche Bank AG, paid more than $180-million for a majority stake in the property that is primarily leased to Transamerica Life Canada.
Buoyed by that success, Toronto real estate circles are buzzing with talk the Menkes family will try to repeat their North York success downtown. The company is thought to be close to a deal for the former rail lands on York Street next to the Air Canada Centre.
Peter Menkes, the executive vice-president of the real estate firm who handles the company's commercial operations, didn't return calls. Those familiar with the company say no construction will take place without lease commitments for at least 40 to 50 per cent of any space.
Talk also has heated up about a possible new development at the city's most celebrated elevator shaft on Adelaide near Bay Street. Brookfield Properties Corp. owns the site of the Bay Adelaide Centre, a proposed 50-storey skyscraper that was put on hold in 1993 when the market soured. Since then, the property has been running as an underground parking garage.
Earlier this month, Brookfield chief executive officer Ric Clark talked about putting the firm's development staff to work, and people listened up.
Brookfield spokeswomen Melissa Coley says the New York-based company is considering options for the site, including some form of mixed-use development that might combine residential units with office space.
She cautioned that it is still early days. "We will explore all the different use alternatives," she says. "We have a lot of research to do. It could be anything. . . . It's not happening now."
The other prime site for a tower project, industry players say, is at Wellington and Simcoe Streets. The land belongs to Cadillac Fairview Corp., which is owned by the giant Ontario Teachers' Pension Plan.
Mr. Morse at Royal Lepage Commercial predicts the shift toward new construction will be driven by demand from some firms to consolidate and move to more modern space.
But fresh demand for new buildings will have to compete with the market's current focus on residential developments. Donald Trump and local real estate developer Harry Stinson have both taken that path with their new Toronto projects. As long as the housing and condo market is hot, why would builders or anyone else take a chance on the tough office sector, many wonder.
Such talk has industry veteran Bill Moore longing for the past. Mr. Moore's best memories are from the two decades beginning in the mid-60s when a handful of developers transformed the Toronto skyline. Top office space at the new TD Centre was going for $6.75 a square foot all in, and there was a steady stream of lawyers, accountants and corporate executives lining up to get an office in the sky.
"It was a time when it wasn't hard for a developer with a decent project to get money," says Mr. Moore, a senior vice-president with Royal LePage Commercial who ran its Toronto leasing operations for 25 years.
But many in the industry point out that some of the big players who built those skyscrapers couldn't fill them with tenants and lost truckloads of money -- much of it that wasn't even theirs.
Philip Reichmann's father Albert and uncle Paul were two of those players who lost First Canadian Place and the rest of their properties because of crushing debt. In 1997, Mr. Reichmann and his partners managed to bring the Toronto bank tower back into the family holdings.
And while Mr. Reichmann talks fondly of the old days, in the end he says his company, too, takes a cautious path these days.
It's like the difference between playing hockey now and 30 years ago, Mr. Reichmann explained. The players are wearing way more protection. "Everybody is risk-adverse," he said this week while discussing the O&Y sale.
"This is no longer the entrepreneurial business that it was."