CBRE Panel: Trump Tariffs Could Spur ‘Pro-Growth Agenda’ in Canada

Panelists at the CBRE Capital Lenders’ Forum agreed: It’s tough to predict the impact of the Trump Administration’s tariffs on Canadian commercial real estate markets.

“It’s impossible to sit here today and determine what the outcome is going to be,” KingSett Capital CEO Rob Kumer told a Metro Toronto Convention Centre audience of 1,000-plus on Feb. 25.

“But the net effect of all this is that we’re getting our house in order. Canadians have finally looked at each other and see we need a pro-growth agenda in this country. So if this is the catalyst to get our game in gear, that’s encouraging.”

Kumer, whose firm manages $18 billion in real estate assets, said he has “a lot of optimism” that the next 10 years in Canada “are going to be a lot better than the last 10.” 

“The next 10 years could be pretty good,” he told moderator Paul Morassutti, Chairman of CBRE Canada. “We may see strength in different places than where we’ve seen it in the last 10 years. Maybe we should all be buying office buildings in Alberta!”

Not Helpful to Housing

Tricon Residential Managing Director Andrew Joyner commented that if Canada were to put retaliatory tariffs on all housing inputs coming from the US, including construction materials, appliances and HVAC equipment, it could represent a “meaningful increase” to total development costs, putting further pressure on new supply and current housing starts.

Kumer said his team estimated that tariffs could result in an increase of up to 4% on total development costs on residential projects. “But if 4% is the worst-case scenario, think about all the things we can do that we have control over to offset that 4%. There is so much within our own control that we are finally going to have to take a hard look at and start executing on.”

Hazelview Investments CEO Ugo Bizzarri noted that unlike the last time Trump levelled tariffs, on steel in 2018, the Greater Toronto Area condo market is currently dormant.

“Back then you couldn’t find anyone to build, today, it’s different. Trades are coming looking for work, and on a couple of projects we’ve seen an 8-10% decrease in the cost of concrete and steel products. So we think it’s the right time to get into the ground today to build multifamily.”

Bizzarri, whose firm has $12.0 billion in real estate assets under management, stressed that regardless of any potential tariff impacts, “real estate is not an industry to be investing in for a short-term cycle. We’re looking at long term cycles in all of our investments, especially real estate.

“Therefore, it’s a bit of background noise for us right now.”

Making the Multifamily Math Work

Morassutti asked the panel if the math for condo and purpose-built rental developments pencils out at the moment, amid tariff threats, historically high construction costs and flattening rent forecasts.

The land market is “moving and shifting,” Joyner pointed out. “And it is going in a direction that will make that input cost help from a denominator perspective, to make projects work and get to a desired yield.”

Echoing Bizzarri’s earlier observation, Joyner said that the cost of early work like shoring and excavation and forming – “the single biggest line item of construction costs” – is now coming down “meaningfully and you’re seeing more and more trade items come off. Interest rates are coming down on construction loans.

“Put that soup together and you’re seeing the denominator of yield on cost calculations shift down and that’s constructive.”

Bizzarri said there is simply not enough multifamily supply and “lots of demand,” so developers need to start building rental housing immediately and not wait for costs to drop, because they won’t. “If you don’t think the math works today, it will be worse in three years,” he said. “So it’s the right time to get into the ground.”

Joyner, whose company is an owner, operator and developer of multi-family apartments, noted that much of the problem stems from lack of coordination between governments on housing.

“It’s not where it needs to be. Too many times municipal policy is doing one thing and federal policy is doing another, with strongly opposing effects.”

Affordable Housing Boon

Kumer said that KingSett is “finding a lot of success” with affordable housing projects in the GTA. “Every deal is bespoke and you need to start from scratch working with all levels of government and CMHC to put together a deal structure that makes sense.

“But it’s been a big part of our business. We raised $180 million of capital for affordable housing a few years ago, raised another $90 million and are looking for another $10 million before we close that raise, with a follow on raise after that.

“All told it will fund up to $3 billion worth of development.  

“So affordable housing is a highly encouraging space. It takes effort, time and investment, but ultimately you can find ways to make money and be creative in this market.”

Scotia Plaza Success

Also encouraging for Kumer and his team has been the success they’ve had in the Toronto office market with repositioning the iconic Scotia Plaza.
Facing 350,000 sq. ft. of vacancy with Scotiabank restacking its space at the tower and moving some offices across the street to its new digs at Bay Adelaide Centre, KingSett and AIMCCo invested heavily in the 1988 office tower, transforming the building into the first Zero Carbon Performance certified office tower in Canada.

They also amped up the amenities, including converting the 68th floor to a tenant amenity area run by Oliver & Bonacini.

All of Scotia Plaza’s vacant office space is now “basically all committed today,” Kumer said, crediting operating partner BentallGreenOak (BGO) with “doing a phenomenal job on operations side” by taking a “hotel approach” to service at the building.

“All of that packaged together shows you that in a very tough operating environment, with the right investment and the right people and strategy you can make some great things happen. It’s been a remarkable success story for us.”

>>Read our blog: Why Everyone Wants to Lease Space at Scotia Plaza

Positive Parting Thoughts

With all the negativity and tumult out there, Morassutti asked his panelists if they had a positive parting thought to offer the Lenders’ Forum audience.

Bizzarri said he thinks the coming years will be a “positive time” for real estate. “Canada is a great place to be. There is lots of turmoil in the world but I think there’s a lot of positive things happening in Canada we can take advantage of.

“We need to change a couple of things on the political side to make things right,” he added, “but I do think fundamentally Canada has a lot of really positive long-term prospects.”

Kumer said that “everyone in good times complains that prices are too high and yields are too low.” Now the opposite is the case, he pointed out, citing the adage, ‘Be fearful when others are greedy and greedy when others are fearful,’

“Well here we are: Everyone’s fearful and negative. So get off your butt and find some things to do. Get your teams back into the office and start working harder and you’ll figure it out. There is lots of stuff to do – get going!”