Opinion: Real estate sector faces talent vacancy

With the city facing a shortage of bright young talent, the term “real estate entrepreneur” might soon go the way of the dodo bird in Ottawa.

Prominent developers such as Claridge Homes founder Bill Malhotra, Irving Greenberg, the genius behind Minto’s rise to prominence, his nephew Roger Greenberg, the man most responsible for getting the Lansdowne Park revitalization project off the ground, Richcraft Homes owner Kris Singhal and others are all going to retire sooner or later.

The question, who will replace them?

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For the last two generations, the economic engines of Ottawa have been government, education, technology, tourism, health, real estate and construction. Bright, talented young people are attracted to all but the last two.

Real estate and construction, vital sectors of the local economy, are suffering from a shortage of new entrepreneurial blood, despite the presence of younger minds such as Alan Whitten at Huntington Properties or Windmill Development Group’s Jonathan and Jeff Westeinde.

Here’s an example to illustrate this lack of entrepreneurial zeal. There is a 177-acre property about an hour and 15 minutes northwest of Ottawa with more than 4,000 frontage feet on a great fishing lake. Its owner wishes to retire to his Toronto condominium. It has not one but three houses on it, three cottages, eight RV sites (with room for many more), three docks, a stainless steel outdoor boiler, its own island and peninsula plus 50 acres of tillable land, boats, a fishing hut and gear.

Its price? $740,000. Number of offers in the last year: zero. Why is that?

It’s because there aren’t enough entrepreneurs like Joe Kowalski, the founder of Wilderness Tours.

Wilderness Tours is located near Beachburg, a village of 900 people, and the importance of Mr. Kowalski’s company to the local economy can hardly be understated. Wilderness Tours boosts Beachburg to a town of about 3,500 on most summer weekends as guests come to whitewater raft, bungee jump and kayak.

The region needs more Joe Kowalskis to buy and develop land in the area and carry on his legacy.

Invest Ottawa president and CEO Bruce Lazenby is right. We don’t want more “economic development” of the sort Dell brought to the region. The Texas-based personal computer giant left two vacant office towers in Kanata when it shuttered its local operations just a couple of years after arriving in Ottawa to much fanfare in 2006.

Instead, Mr Lazenby’s prescription is to attract, train, support and keep entrepreneurs in this community. He figures if they live here (and not, say, in Austin, Texas, as Michael Dell does), they will be less likely to cut and run when times get tough.

To backtrack a bit, why aren’t more young entrepreneurs attracted to real estate?

Frankly, the city’s other sectors look more promising. It also doesn’t help that development in Ottawa is seen as an anachronistic and adversarial process that takes an extraordinary amount of time and comes with a high risk of failure.

The National Capital Commission has long been viewed as an organization that studies problems until one of two things happens – the proponent runs out of money and time and gives up, or he or she dies. The City of Ottawa is not much different in the public’s eyes.

For example, it took Doug Jones and his family more than four years to get his new facility in west-end Ottawa approved and built. Mr. Jones’s family ran Playvalue Toys (PVT) out of rented accommodation for a generation, paying landlords more than $3.5 million over that period. As the business gets ready to pass the torch to the next generation, Mr. Jones’s goal was to move the company into its own building. Unfortunately, that’s not always easy in this city.

Ottawa has some excellent development firms such as Colonnade and Canderel, but their business models are focused on triple- or double-A covenants and a build-to-suit leasing formula. They prefer to keep buildings in their portfolios or sell them at very low cap rates to pension funds and others with an appetite for low-risk investments.

Finding a development partner that will lease space might not be an issue. But if an entrepreneur wants to own his or her own building, it could be.

Why did it take four years for the City of Ottawa to approve PVT’s plans and nearly two more for John Deere to get the go-ahead for its new project currently under construction next door?

First, it’s not always easy to secure properly zoned land. The city believes it has enough industrial land for the next 50 years and has a study to “prove” it. The fact that most of that land is either owned by a few major players who won’t sell, located in areas that aren’t considered commercially viable or owned by the NCC (whose nickname in the industry is “No Commitment Club”) is not taken into account.

Second, the city has an official plan that is supposed to guide development in Ottawa but in reality places a straitjacket on it.

PVT is emblematic of a new hybrid – it sells toys in its showroom and on the Internet. The online component, which is by far the fastest-growing part of the business, requires warehousing and fulfilment, plus access to truck transports and highway interchanges.

Unfortunately, there is nothing in the city’s official plan that permits such a building, so Mr. Jones and his advisers had to invent their own plan. City planners opposed the development at every stage, but the agriculture and rural affairs committee, which oversees development in rural areas, ultimately approved it.

Tech companies 20 years ago did not generally want to own their premises, but as some of their founders age, they’ve come to realize that diversifying their investment portfolios might be in order. Still, they face the same issues owning their own buildings as companies like PVT and John Deere.

For tech startups, the lack of an entrepreneurial culture in real estate can also cause problems because many conservative landlords (many of them now REITs, pension funds, insurance companies, banks or publicly traded firms) don’t want to lease to them.

As for non-tech firms such as locally owned restaurant chains Buster’s, Barley Mow and Don Cherry’s, good luck competing for a landlord’s attention against national covenants such as Swiss Chalet, McDonald’s and the Keg Steakhouse & Bar.

The corollary to all this is that for any young person willing to bring his or her entrepreneurial talents to real estate development and construction, there is an enormous vacuum to be filled.

Bruce M Firestone, PhD, Ottawa Senators founder, Century 21 Explorer Realty broker. Follow him on Twitter @ProfBruce.

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