To build or not to build? Highrise developers rethink projects in face of soaring costs

Isabella Street project
Minto Group is taking a wait-and-see approach to its proposal to build a 16-storey residential highrise on Isabella Street in the Glebe. Image courtesy Minto

In the wake of Claridge’s decision to pull the plug on a proposed Hintonburg condo tower, local developers say it likely won’t be the only multi-residential project on the chopping block in Ottawa as soaring costs prompt builders to think twice about launching new projects.

Claridge made headlines last month when it announced it was cancelling its 30-storey highrise planned for 1040 Somerset St. W. near the Bayview LRT station. 

Despite offering unobstructed views of the Ottawa River and boasting “luxurious, sophisticated design,” the building wasn’t generating enough pre-sales to make the project financially viable, Claridge chief financial officer Neil Malhotra recently told OBJ.

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“The market was not prepared to pay the price that it would take to make that particular project work,” the veteran executive said, adding it was the first time in his 22 years with the firm that it has scrapped a planned build. 

“That is probably not going to be an uncommon story for the next little while.”

Developers say a number of factors are causing them to re-evaluate their plans for major multi-residential housing projects, particularly inside the Greenbelt. 

Malhotra said steadily rising interest rates, rampant inflation that’s driven up material costs and a new bylaw that hikes the fees developers pay to the city in lieu of parkland at highrise building sites are all making it less affordable to build highrise condos and apartments.

The previous parkland bylaw required developers to reserve 10 per cent of the land at new apartments and condos for parks or pay the city cash-in-lieu if the mandated green space was not available.

Cash payouts rise

The revamped bylaw recently approved by council raises the cash payout to 25 per cent of the land’s value for highrises of 10 storeys or more, while the charge is 10 per cent of the land value in subdivisions. 

Malhotra and other developers say those additional charges are a big reason why construction costs for projects like the now-defunct Claridge Hintonburg are skyrocketing by $100 per square foot and more – enough to add tens of thousands of dollars to the price of some units.

“The city is doing everything it can to make transit-oriented development the most expensive place you can live in the city,” Malhotra said, noting Claridge had sold only about 20 per cent of the Hintonburg project’s planned 262 units since they went on the market in June 2021.

“There’s just a lot of headwinds that are making us re-evaluate future projects to determine if they are going to be a go or not.”

Minto Group president Brent Strachan calls the increased fees a “disincentive to development,” adding they’re just one major economic hurdle developers are currently facing.

“It really makes the numbers hard to work,” Strachan said. “That, on top of the hard cost escalations and labour challenges, there’s just a lot of headwinds that are making us re-evaluate future projects to determine if they are going to be a go or not.”

Minto and its affiliated companies currently have two residential highrise proposals in the city’s core that are still going through the approval process: a 16-storey tower at the corner of Wellington Street West and Parkdale Avenue that’s currently under appeal at the Ontario Land Tribunal and another 16-storey tower on Isabella Street in the Glebe.

Strachan said the firm is taking a wait-and-see approach to development as it continues to monitor market demand and the overall state of the economy.

“Until the approvals are in place, we won’t know about the (future of the) projects,” he said, adding he wouldn’t be surprised if other builders followed Claridge’s lead and scrapped some developments that are currently in their pipelines.

Trinity Development Group vice-president Kevin Stark – whose firm is a major partner in a planned three-tower mixed-use development at 900 Albert St. across from Bayview station that would feature Ottawa’s two tallest skyscrapers – also conceded it’s a “challenging time” for builders.

Market in ‘state of flux’

Trinity and its partners have a number of other projects on the go in the capital, including a 25-storey, 315-unit rental tower at the corner of Rideau and Chapel streets that’s slated to be completed by the end of the year. 

The builder has zoning approval to construct a second tower of similar size next door. But Stark said that proposal remains in limbo until Trinity decides whether it makes economic sense to go ahead.

“I wouldn’t say it’s been shelved, but obviously the market is in such a state of flux right now that we have to evaluate it as to its timing,” he said. “You have to pay sharp attention to what you put in the ground right now – how those economics work.”

Meanwhile, Stark said Trinity is still planning to break ground on another “long-term strategic development” in conjunction with its partners next spring. 

But he cautioned that no project is a slam-dunk in today’s uncertain economic climate, so those plans, too, could change.

“There’s been a lot of things in this market that have happened in the last 12 months that I don’t think many people anticipated,” he explained. “So if that continues, it’s a different story.”

Casting a glance to the future, Malhotra says new inclusionary zoning policies that would require condo developers to set aside a certain percentage of discounted units in new projects subject to the zoning could also affect prices. 

He’s hoping the city will rethink some of its policies, but he’s not holding his breath.

“Right now, the atmosphere has been to figure out how to make housing more expensive,” Malhotra said, adding “there doesn’t seem to be a lot of appetite for correcting it.”

Strachan says the city and the development industry need to come together to create solutions that encourage affordable, transit-oriented development and are economically feasible.

“It will take both sides to make that work,” he said. “It’s our hope that (fees) will be re-evaluated from the city’s perspective.”

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