THE CONDITIONS FOR CAPITAL INVESTMENT IN THE REAL ESTATE SECTOR: THE CASE OF OFFICE DEVELOPMENT IN TORONTO lgal Chamey A thesis subrnitted in conformity with the requirements for the degree of Doctor of Philosophy Graduate Department of Geography University of Toronto O Copyright by lgal Chamey 2000 National Library Bibiiotheque nationale 1+1 of Canada du Canada Acquisitions and Acquisitions et Bibliograp hic Services services bibliographiques 395 Wellington Street 395, Ne Wm Onawa ON KIA ôN4 OcrawaON K1AW Canada canada The author has granted a non- L'auteur a accordé une licence non exclusive licence aliowing the exclusive permettant a la National Lïbrary of Canada to Bibliothèque nationale du Canada de reproduce, loan, distribute or seU reproduire, prêter, distribuer ou copies of this thesis in microform, vendre des copies de cette thèse sous paper or electronic formats. la forme de microfiche/nlm, de reproduction sur papier ou sur format électronique. nie author retains ownership of the L'auteur conserve la propriété du copyright in this thesis. Neither the droit d'auteur qui protège cette thèse. thesis nor substantial extracts from it Ni la thèse ni des extraits substantiels may be printed or otherwise de celle-ci ne doivent être imprimés reproduced without the author's ou autrement reproduits sans son permission. autorisation. Abstract THE CONDITIONS FOR CAPITAL INVESTMENT IN THE REAL ESTATE SECTOR: THE CASE OF OFFICE DEVELOPMENT IN TORONTO Doctor of Philosophy 2000 lgal Chamey Graduate Department of Geography University of Toronto This study presens an examination of office development in Canada and speclically in the Toronto metropolitan region in the post-WWII era. The major purpose of this inquiiy is to document and analyze the spatial patterns of office development produced by real estate devetopers in conjunction with financial agents. The changing real estate sector in Canada during the last fiiyean provides the backdrop for this research. The major argument put forward emphasizes spatial limits that shape the geographic scope of office development. The heterogeneity of space prompts the production and maintenance of distinctive surfaces over which office development takes place. The idea of capital switching between circuits of accumulation is expanded to include switching practices within the real estate sector. This notion is introduced throug h the concept of 'three dimensions of capital switching'. In the office development process, one of the major agents is the real estate developer. Developers perforrn two basic spatial tasks: they 'lock' capital into specific places by engaging in the development of office buildings, and they either continue to operate in customary locations or switch their operational preferences between different places. Wii respect to spatial fields of operations, a distinction between two spatial scales is made. Uneven conditions experienced by different cities are a major stimulus for variable spatial practices experienced by developers. Wiiin the Canadian urban system, large developers prefer to invest in specific top-tier cities, particubrly Toronto and Calgary and to a lesser extent in Montreal and Vancouver. The preferences of developers indicate that office development is spatially selective and based on specific regional and local conditions. At the intra-metropolitan level, uneven conditions resut in a distinct spatial division of labour among the developers of office buildings. Office development in the Toronto area illustrates the ability of developers to pursue development in paiücular settings. Their practices result from compatibility with particular environments and with specific societal arrangements. This in tum produces and reproduces territories that are conceptualized as office development districts. iii Acknowledgements In sober-mined retrospect, when I arrived in Toronto in August 1996,l did not fully realize the scale and scope of punuing the Ph.D. quest. In punuing this enonous task, I was very fortunate to have tremendous help and constant caring and nourishing without which t could not have managed. I was fortunate to have an outstanding supewisor and a very supportive committee that enabled me to complete this project in four-years. I was also able to take full advantage of the excellent living environrnent and educational facilities in the City of Toronto, and the resources of the University of Toronto. I am deeply grateful to my Ph.D. supervisor. Professor Gunter Gad, for his support. professional guidance, and his generous nature. His caring and mindful attendance were essential for the completion of this project. Gunter has been professional anchor and friend throughout my Ph.0. program and I feel fortunate to have been able to work with him. I would also like to thank my PhD. committee memben, Professor Lany Boume, Professor Robert Lewis and Professor Susan Ruddick, for their interest, suggestims, and constructive cornments. Their input and support are deeply appreciated. Professor Ted Relph provided direction in the earlier stages on this dissedation for which I am grateful. I owe particular thanks to Professor Anne Haila of the University of Helsinki for acting as extemal examiner, and for her very strong interest in my research. Also, I have thanks to Professor Pierre Filion of the University of Waterloo for agreeing to be on the final examination committee. I would like to thank the Department of Geography at the University of Toronto that hosted me for four years and provided me with scholarships and teaching opportunities. Also, I am thankful for the staff that rnake this department such a pleasant place to study in. In particular, I am grateful to Marianne Ishibashi and Donna Jeynes for their willingness to help and their good spirit. I would like to thank the people who agreed to be interviewed for this research and shared with me their thoughts and ideas, and to Mark Knowles and Dean April of Royal LePage Commercial Inc. for their assistance in the process of data collection. Finally, I would like to thank Professor Amiram Gonen of the Department of Geography at the Hebrew University of Jerusalem who encouraged me to widen my horizons and pursue a Ph.D. program abroad, and for his ongoing interest in the progress of my research. Professor Bryan Massam of York University provided me with moral support in rny first two years in Toronto. Most of all, I would like to thank my family for al1 of the support they have provided over the years. Table of Contents Abst ract Acknowledgements Table of Contents List of Tables List of Figures xiii INTRODUCTION THEORlZlNG OFFICE DEVELOPMENT Principal Approaches 1.l. 1 Neo-classical approaches 1 .1.2 Political economy approaches 1 .1.3 Institutional approaches Components of the Real Estate Development Process 1.2.1 Building cycles and their spatial aspects 1-2.2 Financial institutions and real estate development 1 -2.3 The state and real estate development 1.2.4 Real estate developers Steps Toward a Theory of Office Development 1-3.1 The intrinsic dynamic of real estate capital 1.3.2 The 'three dimensions of capital switching' 1.3.3 Reciprocal relations: Real estate and other capitals A Provisional Framework 2 RESEARCHING OFFICE DEVELOPMENT IN TORONTO: CONTEXT, APPROACH, METHODS, AND DATA Context: The Conditions for Office Development in Toronto 2.1 .1 Population and employment growth 2.1.2 Municipal organization 2.1.3 The planning system 2.1.4 Taxation 2.1.5 General development issues 2.1.6 Office users in the Census Metropolitan Area 2.1.7 The scope for office development The Research Process and the Use of Realist Method Data of lnterest and Data Collection 2.3.1 Extensive data 2.3.2 Intensive research THE CHANGING CANADIAN REAL ESTATE SECTOR The Trajectory of Commercial Real Estate Companies in Canada 3.1 -1 Office development in the first half of the twentieth century 3.1.2 The formative era of modem developers: Entrepreneurial skills and 'extemal' capital 3.1.3 The golden era of office development: Expansion and the establishment of real estate powerhouses 3.1.4 The institutionalization of the real estate sector and the emergence of new entrepreneurs Canadian-Based Real Estate Companies and Office Development in the United States Office Development and Foreign lnveston in Canada ldentifying Primary Office Developers and Owners in the Toronto Area Unpacking Real Estate Developers 4 FlNANClNG OFFICE DEVELOPMENT AND THE ROLE OF FINANCIAL INSTlTUllONS 99 The Configuration of the Canadian Financial System and the Financial Arrangements in the Real Estate Sector 101 Sources of Financing Office Development: The Developer's Perspective 106 4.2.1 Olympia & York: Social networks, ingenuity and the provision of financing 108 4.2.2 Corporate sire and real estate financing 110 Financial lnstitutions as Investors in Office Buildings and as Developers 112 4.3.1 Banks and office development 114 4.3.2 Life insurance companies and office development 118 The Spatial Practices of Office Development and Ownership by Financial Institutions 122 4.4.1 Banks 123 4.4.2 Life insurance companies 126 The Spatial Limitations of Real Estate Capital 130 Financing and Financial Institutions: Concluding Remarks 133 THE THREE DIMENSIONS OF CAPITAL SWITCHING: LARGE CANADIAN REAL ESTATE COMPANIES AT THE NATIONAL SCALE 136 Switching Between Modes of Operation 138 Switching Between Property Types 140 Switching Between Locations at the National Scale 144 5.3.1 The geography of office building cycles in Canada 145 5.3.2 Office building cycles