The office condo – an overdue development, entrepreneurs say
Globe and Mail
Jennifer Lewington
08 September 2014

From his rented office in north-end Toronto, lawyer Nikolay Chsherbinin can look across the street at the construction of a high-rise tower where he has purchased space for his firm to move into early next year.

Yes, he’s buying, not renting, his future office.

Toronto is a top market for residential condo purchases, but only a tiny slice of commercial office space is for sale. Several current office condo projects in the Toronto area illustrate the appeal of ownership for economic and, in some cases, cultural reasons.

“For me, leasing is not a good option,” says Mr. Chsherbinin, who founded his four-person firm in 2011. “When you lease, you are paying someone else; you are not building any equity.”

Several factors weighed in favour of buying, not leasing, for the 36-year-old Russian-born lawyer.

His boutique law office specializes in employment issues and immigration litigation and he plans to stay small-scale. He regards his North York location, at the crossroads of two subway lines and minutes from Highway 401, as ideal given its potential for future commercial growth. Not least, his office condo represents a retirement nest egg.

“This is an opportunity for a forward-looking professional,” he says of his purchase. At retirement, he says he could sell the unit or lease it to others instead of paying “hundreds of thousands” of dollars in rent for the next 30 years. “Instead, I am generating that amount as equity.”

Last year, he purchased one office unit and later an adjacent suite – about 2,400 square feet in total – in the Hullmark Corporate Centre at the southeast corner of Yonge Street and Sheppard Avenue.

The project, a partnership between Tridel Corp. and Hullmark Developments Ltd., is a mixed-use development of about one million square feet with two towers, 35-and 49-storeys high, and a five-storey podium between them for retail.

The first 12 floors of the taller north tower are allocated for 198 office condo units, with a separate entrance on Yonge Street and upscale services that include a concierge and access to a conference room. As with a residential condo building, the office owners have their own board of directors and pay monthly maintenance fees. The south tower has 39 office units.

The developers initially planned to lease the office units, but drew little interest from renters, according to Jim Ritchie, senior vice-president of sales and marketing for Tridel. In 2010, in a change of strategy, the developers offered the units for sale. That year, buyers snapped up 137 of 198 units.

Today, with occupancy set for November, only three of 237 units in total remain unsold in the Class A buildings. An average unit of 845 square feet sells for $515,000, Mr. Ritchie says.

Though pleased by the near sellout, he describes office ownership as a narrow slice of the real estate market.

“I don’t think this can apply anywhere and everywhere,” he warns.

“We tried to address users who were more entrepreneurial and smaller in scale and who wanted an upmarket, triple-A environment and liked the whole idea about ownership,” he says, with the marketing focus on doctors, lawyers and other professionals. “We didn’t go out to chase big users because they were not going to buy these things.”

Though office condos are a niche segment of the commercial market, Mr. Ritchie says “we would do this again under the right circumstances,” citing key factors such as a building’s location and the profile of potential buyers.

James McKellar, professor of real estate and infrastructure at the Schulich School of Business at York University, says that for some, businesses office condos often “don’t make sense economically” because it may be cheaper to lease than to buy in certain locations. Others may not want to commit to ownership when company operations could expand or shrink over time.

One part of this niche market has drawn interest from Toronto-area immigrants, especially from China, South Korea and Iran, who value owning a long-term asset. “For what you get for your money in Toronto, [it] is extraordinary from their point of view,” says Prof. McKellar.

Farzam Jalili, president of the Professional Iranian Canadian Real Estate Association, says “ownership is very important in our culture.” Self-employed professionals, he notes, “normally go for a freehold or free-standing premises for their own uses rather than to rent.”

Mr. Jalili, owner of Real Home Realty Inc., in Richmond Hill, Ont., says he knows of young professionals who have purchased in Hullmark Corporate Centre and at suburban locations along Yonge Street’s northern corridor.

While office condos often are located in the suburbs, one developer is bringing the concept to downtown Toronto.

“Toronto is really the [residential] condo capital of the world, but not for commercial condos,” says Patrick Quigley, president of St. Thomas Commercial Developments, with the project at 7 St. Thomas St. his company’s first commercial condo. “It is completely foreign to them [local buyers] but quite common in New York, Chicago, London and everywhere in Europe.”

Located just south of the city’s toney Yorkville district and on the same site as the company’s recently-completed high-end residential condo tower, the office condo is a nine-storey, 93,000-square-foot luxury building designed by Hariri Pontarini Architects and scheduled to open in the spring of 2016.

The Class A office building of curving fritted (porous) glass tucks behind six 19th century townhouses incorporated into the project. Priced from $450,000, the units appeal to established companies who want a long-term investment in a prestige location, says Mr. Quigley.

The project is about 50 per cent sold, but Mr. Quigley concedes the concept is unfamiliar to potential buyers.

“The sellout of this has been arduous because it is an education process,” he says. “Now that we have started construction we have had a lot of activity and some who came by a year ago are coming back again.”

Back in North York, Mr. Chsherbinin concedes the office condo option “is not for everybody” but he remains “very excited” about his decision to move across the street.

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