Construction in Toronto Continues with $91M Hospital Project

Commercial real estate development is on life support in the United States, but in parts of Canada, like greater Toronto, construction is still alive and kicking, and Aecon Group Inc. is among those companies that are in the midst of building. Acting through its Buildings and Concessions divisions, Aecon just wrapped up the financial close on the $91.5 million Lakeridge Health Oshawa hospital redevelopment project in Oshawa. Located within the Regional Municipality of Durham, an eastern submarket of Toronto, the Lakeridge Health Oshawa endeavor is a build-finance project that is being implemented through the Ontario government’s Alternative Financing and Procurement Plan. Aecon is footing the bill for the project, but the Toronto-based construction and infrastructure development company will be reimbursed by Lakeridge Health Corp. once the last nail has been hammered. To get its hands on development funds, Aecon relied on financial arranger Stonebridge Financial Corp., which obtained non-recourse debt financing from the Manufacturers Life Insurance Co., London Life Insurance Co., Industrial Alliance Insurance & Financial Services Inc. and the Equitable Life Insurance Co. of Canada. Aecon’s work at Lakewood Health Oshawa will constitute Phase 5 of a massive redevelopment of the hospital’s Oshawa campus; Lakeridge operates a total of four locations. Activity will include the new construction of two floors totaling 17,700 square feet atop an existing two-story structure; the fit out of six floors in the property’s Southeast Tower, and the renovation of three wings of the hospital. Construction is on target to begin next month and wrap up in spring 2011. According to real estate services firm Cushman & Wakefield LePage, while Canada is headed toward a recession that will likely continue through the first quarter of this year, drastic corrections in the commercial real estate market are not expected due to Canada’s more controlled lending practices and avoidance of overbuilding over the last several years. “In the downturn of the late 80s and early 90s, our market really learned its lesson,” a spokesperson with C&W LePage told CPN. “Entrepreneurial developers were replaced by institutional developers and investors.” Yet Aecon is not the only one erecting walls in Toronto these days. The office market, in particular, remains comparatively active. Three major office towers are going up in Downtown Toronto, and in the western suburban market, five more office buildings are in progress, two of which are spec properties. The Hospitals of Ontario Pension Plan is behind one of the spec buildings, the 225,000-square-foot AeroCentre V. The pension fund is self-financing, but developers who don’t have their own deep pockets are still managing to secure building funds. “If they can hit 60 percent in terms of pre-leasing, they’ll typically find money for the project,” the spokesperson said. The office vacancy rate is presently just over 5 percent. For commercial real estate projects in general, “the money is available, but lenders are still being very cautious who they lend to.”