Understanding The Development Process

Dear Urbaneer


Given Urbaneer.com’s history of launching multiple new and loft conversion condominium projects within the City of Toronto over the past twenty years, we’re frequently asked how a project goes from concept to completion. Interestingly, whether you are converting a small building into a few residences or intensifying the urban core with a mid-to-high-density condo project, the process by which you go from idea to execution tends to follow a similar course of action.

So when we recently received this email asking how the development process works, we decided to make it this month’s ‘Dear Urbaneer’ question:

“Dear Urbaneer: We’ve discovered that it takes around three to four years for a condominium project to get completed from when the first signage goes up? Why does it take so long?


Waiting & Waiting”




Here’s my response:


“Dear Waiting & Waiting:

There’s no question a lot of Buyers get frustrated over how long it takes for a building to be completed. Especially when the onsite sales representative gives you a move-in date that’s only 18 months from the day you sign the Agreement of Purchase and Sale.

What’s up with that?

For one, if a salesperson told you it would take three to four years for you to own your suite, you probably wouldn’t buy it. After all, most people can only plan around 12 to 18 months into their future, and then pretty much anything can happen, right? When we operate in a pre-sales capacity, we tell prospective purchasers that “If everything unfolds as planned, you’ll be living in your suite within 18 months from today!” Of course, rarely does anything go according to plan, but unbridled optimism is a requirement of sales and in a perfect world it will happen. There’s no deceit, but the truth may be coloured. Our recommendation? If you’re buying something which isn’t easily available or replicated by virtue of its location, space plan, features or quality of life, then it may well be worth the wait to get that Dream Home.

There are multiple steps which are required when a development team is undertaking a new project. Here’s a synopsis:



1) Locate Appropriate Land at a Development Price

A development team specializing in residential condominiums seek sites where the improvement, intensification or change of land use to residential will be the highest and best use. Under-utilized or obsolete land parcels amidst areas of changing use are key locations to monitor, although a development team is always open to all locations, as housing desirability is a constant moving target based on shifting market demands, social and political frameworks, and the current economic climate. Development teams all have a standard proforma program that determines an appropriate cost allocation for land in the development formula. Although there are varying means to ascertain land value, a simple rule of thumb is to allocate about 25 percent of your proforma to land costs in the City of Toronto. Given land is so expensive in Toronto, it can easily account for 35 percent of your total development budget.




2) Review Existing Zoning, Building Codes and As-Of-Right Development Approvals

Once a development site has been located, one quickly reviews the zoning designation to ascertain whether the land value reflects the development possibilities. Density, site setbacks and parking requirements are three of many factors that influence a development program. All factors are reviewed in detail to determine how to optimize the site to provide the greatest return in the least amount of time. Some sites may already have approvals in place while others may be in a location favoured for intensification or near sites that have been precedent-setting in achieving higher-use approvals from the necessary planning authorities. These factors are quickly determined within minutes of a site being presented as a potential development site.



3) Assemble Expertise To Determine Highest And Best Use Conceptual Program

Once a site is reviewed and deemed to complement the developer’s market, an initial meeting with the development players explores different conceptual programs that will capitalize on the site with the greatest of ease in the least amount of time. As housing conceptualists experienced in monitoring the supply and demand side of the marketplace, we direct and liaise with the developer, the architect, the urban planner, the contractor and the legal team to create a fit between market demand and site optimization. It is at this time we dovetail the development within the existing infrastructural context to see how we can create a desirable and attractive product reflective of the surrounding area and integrate innovative products and government programs that optimize return on investment. On review and completion of this exercise, the decision is made whether to secure the development site or not and then take the next steps to fine-tune and choose one program concept.




4) Tune Pro-forma Program

If a site is secured conditionally or purchased outright, the development team expands and involves those players who can fine-tune the development proforma. Ideally one allocates around 25 percent of the budget each to the necessary hard and soft costs, resulting in a minimum 25 percent profit margin – ideally 30 percent if possible. Hard costs include material, energy and labour input costs while soft costs include lending, design, planning, environmental, marketing and sales fees.

To accurately execute the proforma program, the developer expands his team to include his financing lender, construction contractors, environmental, mechanical and structural engineers, interior and graphic designers, sales and marketing agency and any other players that will be involved in the development. All costs may be tendered and incorporated into a final document ready for execution, along with a contingency fund to address surprises as they inevitably come up.




5) Obtain Social and Political Support

While a development proforma is being completed and tendered, an ongoing dialogue with the necessary planning authorities is being conducted to ensure the development concept will be supported politically and by area residents. A pro-active developer always consults with all political players and area residents in advance of launching or marketing their housing community involvement in advance provides a developer the opportunity to accommodate demands of the market and ensure a positive feedback loop to the community at large.




6) Obtain Satisfactory Financing and Reasonable Rates

A development team usually has a relationship with one particular lender based on past success but may elect to shop his development proforma to a variety of lenders to obtain the most attractive financing package. Depending on the economic climate, lenders may be involved in the early stages to ensure their criteria are met to assure their confidence and security as one of the principal risk-takers, but will not provide financing approvals until an accurate budget has been tendered and all costs reviewed in detail. On this basis, the lender then sets their own criteria for releasing funding, frequently on the basis of achieving a certain percentage of pre-sales in advance of construction. Given concerns that Toronto has a potential over-supply of condominium housing, lenders are stipulating a significantly higher number of pre-sales be achieved before they will finance a project.




7) Execute Building and Planning Approvals and Documentation

As all the players come on board, the developer will formally move into capital expenditure, hiring the appropriate consultants to obtain all necessary approvals and documentation. This includes all architectural, landscape and interior design programs, mechanical, structural and plumbing drawings, environmental reports, all planning and government agency approvals, building permits, draft condominium status and all legal contracts including agreements of purchase and sale. This is when the developer starts ponying up the cash for the city’s development fees and levies, including construction permits, development charges, art contribution levies, park levies & education levies. In Toronto these development charges (addendum – July 2022 City Of Toronto –> “will be hiked 46% for residential new builds, while the charge for non-residential buildings was bumped up 40%. Developers looking to build single-family dwellings must now pay $137,040 charge, while for rental buildings or condos a bachelor or one-bedroom apartment will rise to $52,367, and for apartments with two or more bedrooms, the fee will be $80,218”.)




8) Launching The Site In A Pre-sales Capacity

A developer’s sales and marketing agency will research the location and target market profile to ensure a strong demand exists for the proposed development. When the project is initially exposed to the market, the developer’s main objective is to achieve around 70 to 90% of his pre-sales in advance of construction, which is frequently a requirement of the principal lender. As a result, the unit mix, style and configuration are carefully considered in tandem with proposed sale prices so the development sells quickly. In effect, the faster the product sells, the more desirable it is deemed by prospective buyers, the lower the marketing and promotion costs and the more quickly construction can get underway, a key factor to optimizing return on investment. In today’s marketplace, a developer may be prepared to narrow his profit margin initially to achieve the necessary pre-sales and get the project underway, then follow a series of price escalations through the construction program so that prices are highest for the last remaining units when a buyer will effectively pay the most for a new finished product one can physically touch, see and occupy promptly. It is appropriate that prices would be higher for a completed product and initial risk takers rewarded for purchasing in a pre-sale capacity, where one is required to purchase from the floor plan, choose from a selection of finishes, and sign a contract that provides delivery as long as three years in advance. It may be part of the development program to present this rationale to buyers in order to embody a win-win philosophy with the pre-sale consumers, who should experience a tangible reward for their role as risk-takers in the pre-sales stage.




9) Starting Construction

One of the big challenges for developers is getting enough pre-sales to begin construction, and then get the building completed in a timely manner. This is where the first pre-sale purchasers can find themselves waiting three to four years to take ownership of their unit. Although in an ideal world a condominium could be built within 18 months of reaching sufficient sale targets, lagging sales, a shortage of construction trades, or delays getting building permits can slow down a project. Most all developers account for these possibilities in their Agreements of Purchase & Sale, which typically allow for a delay of up to 18 months on attaining planning and financing approvals, a further delay of up to 18 months for construction, and an additional delay of up to 18 months for the condominium to be registered as a corporation through the city so the Buyer can take title ownership of the suite.




10) Taking (Interim) Occupancy

Much to the surprise of many buyers of new condominiums who don’t do their due diligence, closing on their suite is a two-step process. One is for interim occupancy and one is when you take formal ownership and register your mortgage on title. Interim occupancy is determined when the suite is deemed 95% complete (meaning it may still not have appliances or lighting fixtures etc.), at which point the purchaser must “occupy” the unit and pay the developer a monthly amount comprised of the monthly common expense, interest on the deferred purchase price and an estimate of the apportioned realty taxes. This takes place when the municipal authority issues the developer permission to begin occupancy, which typically happens floor by floor. The occupancy fees paid to the developer during this period are not credited to the final purchase and the only way to avoid paying interest on the deferred amount of the purchase price is by electing to pay the full amount of the purchase price on interim occupancy. It is important to understand that a mortgage cannot be secured on the occupancy date.



11) Final Closing

The final closing occurs when the developer can legally register the condominium declaration and transfer title to the individual unit purchasers. This date can occur at any time after interim occupancy, and is generally anywhere as soon as three months to as long as eighteen months. The timing is partly prescribed by the Ontario New Home Warranty Plan’s schedule of occupancy and final closing documents provided to the purchaser upon signing the Agreement of Purchase and Sale. Only upon final closing will a buyer be able to secure a mortgage, as this is when the title will be delivered.

The development process can be a complicated journey which entails multiple individuals, companies, organizations, and municipal authorities to execute. That it really can take three to four years should ultimately come as no surprise. It involves many players in every facet of the housing and regulatory industries.”



Thank you for reading!

Do you have questions? At urbaneer.com, we’re here to guide you through your real estate needs, wishes and wants, including purchasing a new condominium.

We’re Steven Fudge & The Urbaneer Team
Bosley Real Estate Ltd., Brokerage (416) 322-8000

earn your trust, then your business


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