Quote:
Originally Posted by CoryB
The grocery landscape is Canada heavily suggested the grocery store inside SkyCity was a pipe dream from the start. There are effectively two players in the large grocery store format, Loblaws and Sobey's. Loblaws has very limited experience in the urban grocery store format and is unlikely to take a gamble on this opportunity. Sobey's was thought to be having some success with the format in other cities however part of their Safeway acquisition say almost every urban format store included in the first round of store closing. That the proposed grocery store is planned for the second or third floor of the podium also suggests even the developer views this as a long shot. Grocery stores need access to a good loading dock and frequently receive heavy pallets of merchandise. Locating somewhere other than ground level likely means still having a ground level loading dock but now adds in the requirement for a heavy freight elevator and makes the whole process of stocking the store significantly more complicated. That is without even entertaining the discussion on what a third floor grocery store would mean for people that don't live in the building.
My thoughts are that the proposal still goes ahead, the grocery space gets built and remains empty. I also think that multiple floors will be enclosed with minimal roughing in but left undeveloped when the building is "completed" with build outs happening as demand warrants. I also would not be surprised to see some other use for a number of floors envisioned as condos, either smaller apartments, a hotel or perhaps even office space if they can secure a long term lease.
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Given how the banks are viewing the development landscape at the moment, nothing is getting built that is going to sit vacant.
Financing is tight right now and Fortress' entire model depends upon the initial high-risk equity at 8% being taken out by construction financing at market rates. And they
need that to happen because they can't afford to keep paying 8% in actual cash flows with any sort of vacancy because they won't get the back end financing figure that accounts for that cash flow. In other words, the building is only worth their projections - paying 8% monthly bond coupons - at a rate that doesn't account for any significant long-term vacancy
or any sort of residential rental model that doesn't produce nearly the amount of cash flow required to construct something of this nature. And all of this
only works if you maximize your project as planned because they paid $9.5MM for the land.
There was never any margin for error in this project, and that was assuming everything was on schedule, which it's not. The project is already blown. There's no possibility that the project can manifest with any sort of vacancy because nobody will finance it unless they're prepared to wipe out a whole pile more equity investors and call it the downside of the risk/reward continuum.
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