Real Estate Entrepreneur Shortage
(A version of this article first appeared in Ottawa Business Journal) The term “real estate entrepreneur” may become an oxymoron in Ottawa as some great figures from the last generation reach retirement age or pass from the scene. Who will replace Bill Malhotra, Claridge’s founder, Irving Greenberg, the genius behind Minto’s rise to prominence and his nephew, Roger Greenberg, the man most responsible for getting Lansdowne Live off the ground, Kris Singhal, Richcraft owner, John Doran, one of the two founding partners at Domicile or Doug Casey at Charlesfort? For the last two generations, the economic engines of Ottawa have been—government, education, technology, tourism, health, real estate and construction. Bright, talented young people are attracted to all but the last two. It’s real estate and construction, an important sector, that is suffering from a shortage of entrepreneurial minds despite the presence of talented younger people like Alan Whitten at Huntington or Windmill’s Jeff Westeinde. There is a 177-acre property about an hour and 15 minutes northwest of Ottawa with more than 4,000 frontage feet on a great fishing lake. Its owners wish to retire to their Toronto condominium. It has not 1 but 3 houses on it, 3 cottages, 8 RV sites (with room for many more), 3 docks, stainless steel outdoor boiler, its own island and peninsula plus 50-acres of tillable land, boats, fishing hut and gear. Its price? $740,000. Number of offers in the last year—zero. Now why is that? It’s because we aren’t seeing enough entrepreneurs like Joe Kowalski, Wilderness Tours founder and Mount Pakenham owner, who originally came from the great state of Pennsylvania, decide to live and work in this area, more particularly in Beachburg, Ontario. Beachburg is a village of 900 people. The impact Wilderness Tours has had on it and the area can hardly be understated—Wilderness Tours grows to a town of about 3,500 on most summer weekends as guests come to whitewater raft, bungee jump, and kayak. Invest Ottawa President and CEO Bruce Lazenby is right—we don’t want more “economic development” like Dell’s Ottawa experience. Sir Terence Matthews’ group (Kanata Research Park) built two new shiny towers for Dell only to see them left vacant two years later. Instead, Mr Lazenby’s prescription is to attract, train, support and keep entrepreneurs in this community. He figures if they live here (and not, say, in Austin like Michael Dell does), they will be less likely to cut and run when times change. Why aren’t more young people attracted into real estate? Frankly, Ottawa’s other sectors look more promising. It doesn’t help that development in Ottawa is seen as an anachronistic and adversarial process, which takes an extraordinary amount of time to complete and comes with a high risk of failure. The NCC (National Capital Commission) has long been viewed as an organization that studies problems until one of two things happens—the proponent runs out of money and time and gives up or s/he dies, whichever comes first. The City of Ottawa is not far behind the NCC in the public’s view. It took Doug Jones and his family more than 4 years to get his new facility in west end Ottawa approved and built. Mr Jones’ family ran PlayValue Toys (PVT) out of rented accommodation for a generation, paying landlords more than $3.5 million over that period. As the business passes to the next generation, his goal was to see PVT owning its own premises. Ottawa has some excellent development companies like Colonnade and Canderel, but their business models are focused on triple or double A covenants and a build-to-suit to lease formula. They prefer to keep buildings in their portfolios or sell them at very low cap rates to pension funds and others with an appetite for close to risk-free investments. Finding a development partner who will lease space may not be an issue. But if an entrepreneur wants to own her/his own building, it could be. Why did it take 4 years for PVT (and nearly 2 more for John Deere’s new project currently under construction next door) to get approved by the City? Firstly, Ottawa believes they have enough industrial land for 50 years. Of course, they have a study, which “proves” it. The facts that most of the land is owned by a few major players who won’t sell any or is in the wrong location or is owned by the NCC (whose nickname in the industry is “No Commitment Club”) are not taken into account. Secondly, the City has an official plan that is supposed to guide development in Ottawa, but really places a straightjacket on it. PVT is emblematic of a new hybrid—they sell toys in their showroom and on the Internet. The latter (which is by far the fastest growing part of their business) requires warehousing and fulfillment plus access to truck transports and highway interchange. Unfortunately, there is nothing in the City’s OP that permits such a building so Doug and his advisers had to invent it. City planners opposed the development at every stage. ARAC, a 5-member committee of Ottawa Council, unanimously approved it. Tech companies 20 years ago did not want to own their premises, but as some of their founders age, they’ve come to realize that diversification of their own investment portfolios might be in order. Still, they face the same issues owning their own premises as PVT and John Deere. For tech startups, the lack of an entrepreneurial culture in real estate can also cause problems for them—conservative landlords (many of them now REITs, pen funds, insurance companies, banks, publicly traded firms) don’t want to lease to them. For non tech startups like locally owned restaurant chains Busters, Barley Mow, Don Cherry’s, good luck competing for landlord attention against national covenants like Swiss Chalet, McDonald’s, Keg Steakhouse & Bar. The corollary to all this is that for any young person willing to bring his/her entrepreneurial talents to real estate development and construction, there is an enormous vacuum to be filled. Bruce M Firestone, PhD, Ottawa Senators founder, Century 21 Explorer Realty broker. Follow him on Twitter @ProfBruce.