The Canadians Are Coming

It was an intriguing assignment. Keith Bryant, a native Canadian, was working as a financial consultant in Montreal in 1977. He had been hired by a large Canadian mortgage company to find a city in Texas to house a new regional office, a southern center from which the company could join in the mining of new gold in the American sunbelt. Bryant checked out both Dallas and Houston. Houston was the heavy favorite among the executives back in Montreal; the city was the nation’s number one boomtown, with an annual growth rate of 37 percent. But Bryant found things about Houston that bothered him. The city was “a little wild and fancy.” And he didn’t think Houston’s growth was orderly; the city didn’t have any zoning.

Dallas, at first blush, was very different. The relatively planned growth of the city impressed the conservative Canadian from the moment he stepped off the plane at DFW Airport. So, in spite of executive sentiments back home, he told his employers in Montreal that Dallas was it. “You’d better be right,” they said. Bryant said he was.

By October 1978, the mortgage company assignment was over, and Bryant returned to his specialty – real estate development. But he didn’t return to Canada. He stayed in Dallas. The city, he thought, had long-term potential, while Houston might eventually go flat, a victim of its own chaos. He wanted to build for 15 years, not one or two. Later he passed the good news to real estate executives at Hawco, another Montreal firm. You should be in Dallas, too, he advised them. They listened. The result was a new company, Hawco (U.S. A.), in which Bryant invested. In the six months since its formation, the new venture has launched an industrial park and office complex in Grand Prairie and an office development at Stem-mons and Mockingbird, projects that could eventually amount to around $100 million. Keith Bryant was right.

Hawco wasn’t the only Canadian real estate operation to be lured by Dallas and its abundance of raw land. Over the next three years, a host of Canadian real estate giants moved quietly into town. From time to time, news of their arrivals turned up on the local business pages, but there was little in the way of fanfare. The Canadian invasion proceeded almost unnoticed, except within the local real estate industry. Today, no less than a dozen Canadian firms have set up shop in Dallas – five of them among the largest real estate operations in North America. The Dallas landscape is suddenly sprouting maple leaves on every other corner.

The Canadians are here in more than numbers – they are here in acres and dollars. They are the proud owners of some of the city’s choicest property. Consider this partial list of their present endeavors: ? Oxford Development Group, Edmonton. Oxford spent over $20 million to purchase half interest in the existing downtown Southland Center (Southland Life Tower and Sheraton Hotel), plus a new $33-million, 31-story addition to the Center that is now underway. With the deal came half interest in seven acres of extremely valuable land surrounding the Center, in the heart of the booming northeast sector of downtown. Oxford is also developing, in a joint venture project, a 900-acre single-family residential development in Carrollton.

Rostland Corporation, Toronto. Rost-land, in a joint venture with another Canadian outfit, Wycliffe International, is developing acreage for office buildings at Stem-mons and LBJ. Rostland also shares interest in a luxury residential development ($150,000-$300,000 houses) in North Dallas. In another joint venture, Rostland is erecting three office buildings at the southwest corner of LBJ and Hillcrest. The company also plans a medium-rise office complex, with adjacent condominiums, at the southwest corner of Beltline and Preston.

Genstar Ltd., Montreal. Genstar is developing a 240-acre tract in north Dallas forhouses in the $110,000-$175,000 range; theproject is already about half completed. Thecompany also has two joint ventures in Arlington: a200-unit apartment project and anadjacent 30-acre site to be sold for apartment or condominium construction.

Cadillac-Fairview Corporation Ltd., Toronto. Cadillac-Fairview, the largest publicly held real estate company in North America (with $700-$800 million in assets in theU.S. alone), has recently established a12-state regional office high in the First International Building. From there the company is planning at least two major officebuildings, one of them downtown, where itis presently acquiring property. The firmalso plans to build 700 to 1000 homes annually in Carrollton and the Mid-Cities.

Kinwest Development, Winnipeg. Kinwestowns 2200 acres in Irving’s sprawling LasColinas, the city’s most prestigious suburban office development.

Daon Development Corporation, Vancouver. Daon has begun development of TheQuorum, a high-profile holding in boomingAddison near Prestonwood Mall. Daon alsoholds an option on a prize six-acre site adjacent to the Fairmont Hotel downtown.

Olympia and York Developments, Toronto. Olympia and York has purchased a primedowntown acre at the corner of Bryan andHarwood across from One Dallas Centre.

N.B. Cook Corporation, Vancouver.Cook holds 600 acres in far North Dallasslated for offices, retail, and housing. Thecompany also owns 400 acres of residentialproperty and the 700-acre Mark IV businesspark in Fort Worth, with 30 industries already located there.

Block Bros., Vancouver. Block Bros, owns 1200 acres at Stemmons and LBJ planned for residential, industrial, and commercial space.

Canadian real estate investment in the U.S. is hardly limited to Dallas; it extends from coast to coast. Why the sudden surge? The key reason: Canada, a country of vast area and small population, has been something of real estate bust within its own borders. Plenty of land, but nobody to sell it to. And nobody wanting to build on it. “It’s the size of the country,” says Jim Nesbitt of Oxford Development. “In Canada you’ve got 23 million people. In the U.S. you’ve got 230 million. In Canada you might find eight or nine cities big enough to support major developments. In the U.S. you have 90 centers to look at. Basically, we have a product and we’ve brought it to the States.”

The product is money. Despite its small population, Canada has built up some of the continent’s largest real estate firms, many with more than a billion dollars in assets. These giants have huge organizations, plenty of cash, and a limited number of places in Canada to put them to work. “These Canadian companies,” says Hawco’s Keith Bryant, “have tremendous resources in people, skills, land, and money – and no place to build. They’ve got to feed those machines, and there’s just not enough growth in Canada to feed them.”

How then, if the Canadian real estate market is limited, did these companies get so big in t he first place? These firms were in part the product of a surging growth period in Canada after World War II and Canadian tax laws that encouraged the formation of large commercial real estate concerns. These tax laws allow the owners of industrial, office, and retail buildings to delay paying significant portions of their taxes on the buildings’ incomes for as long as they retain ownership of the property. If they sell, the accumulated tax is due. By holding on to the property, building owners retained cash they would otherwise have lost to taxes. The law was aimed at giving industrial owners the cash to modernize. But it also gives real estate firms additional ready cash to buy or develop new properties, while also giving them an incentive to keep old ones.

Homebuilders, who didn’t receive the same break, prospered from the surge in Canada’s population due to a baby boom, heavy immigration, and the post-war increase in demand for residential housing.

Then came the blow for Canadian builders. Growth slowed, except in western Canada, where the nation’s rich energy resources continued to fuel development. Developers began to face opposition from environmentalists and other groups concerned about the pace of growth. It became difficult even to obtain a building permit. “It was a laborious process,” says Rodney Scales of Rostland Corporation. “It could take months, even years.” So while the general market was sagging, it was simultaneously being made increasingly difficult for Canadian builders to get anything done.

The only way out lay south, in the United States, where growth, in many areas, was rampant, where real estate dollars flowed like water, and where restrictions on development were minimal by Canadian standards. “They were finding things not so rosy back home,” says Mike Reynolds of Henry S. Miller Co. in Dallas, “so they started coming down here to make some money. They marvel at the fact that you can have a lot ready to build on in nine months. They can’t believe it.”

And nowhere did prospects appear brighter to the cash-heavy Canadians than in the southern U.S. Recent statistics showing that over the past decade, 40 percent of the nation’s growth occurred in Texas, California, and Florida weren’t lost on the Canadians. It’s here that they have concentrated much of their considerable capital.

The extent of the movement is clearly illustrated by Genstar, a large Montreal firm with interests in both real estate and building materials firms. Three years ago, only 20 percent of Genstar’s assets were in U.S. holdings; today, over 50 percent. And while the firm ostensibly remains headquartered in Montreal, it has moved its executive offices to San Francisco.

The Canadians have brought more than real estate ventures to the U.S. All told, the Canadians had sunk nearly $6 billion into U.S. investments of all kinds, including real estate, by the end of 1978; 1979 figures are not yet available, but Commerce Department officials project that the rate of Canadian investment is still accelerating. As of February 1979, Canadians owned 266,000 acres of U.S. farm land. These figures place the Canadians behind other foreign investors in terms of U.S. holdings, including Great Britain, the Netherlands, and even tiny Luxembourg. But in terms of actual building – the laying of brick and mortar – in the U.S., the Canadians have emerged as the clear leaders of the foreign pack. “In fact,” says Don Williams of Trammell Crow, “the Canadians are just about the only foreign developers operating.” Investors from other nations are generally content to sink their cash into American projects.

The flip side to the Canadian invasion story, as Canadians would be quick to point out, is that American investment in Canada still dwarfs their investment here. At the end of 1978, Canadians had $6 billion invested here. Americans had over $37 billion invested on the other side of the border. However, a large percentage of that investment is in manufacturing. American real estate firms have had little impact in Canada. The Trammell Crow Company of Dallas, for example, once ventured into Canadian real estate, establishing an office in Edmonton in 1973. The effort was shortlived. “It was the general difficulty of doing business,” says Don Williams of Trammell Crow, “of which the technical restrictions were just one reason. Not being wanted was another.”

What kind of reception have the Canadian invaders received here? Apparently the Canadian influx hasn’t stirred up any significant resentment among local developers. They are not viewed as greedy carpetbaggers. “1 haven’t come across any antagonistic attitude about the fact that we’re here,” says Scales of Toronto-based Rostland.

Their acceptance is based partly on the fact that, generally, the Canadians have adopted a “do-as-the-Romans-do” style. Most of the Canadian firms have linked up with American partners and hired American staffs, in keeping with a basic tenet of real estate: Success lies in knowing the local terrain and the local marketplace. “Some Canadian firms,” says Murray Hardisty of N.B. Cook of Vancouver, “have been burned by building the same things they used to build in Calgary, then finding out that the people in Denver don’t like it. I like dealing in Texas and I like having a Texan represent me. If I don’t, my accent sticks out like a sore thumb. Why reinvent the wheel? I don’t know where City Hall is. I don’t know who’s in. I don’t know where the Brooklyn Bridge is for sale.” Moreover, the Canadian developments have provided opportunities that have proven attractive to the city’s native developers. Trammell Crow, for example, is building a 250,000-square-foot office building and a shopping center within the Daon Corporation’s Quorum development.

But the magnitude of the influx is undoubtedly having significant effects on the -Dallas real estate industry. “They’ve probably been a factor in rising land prices,”adds Williams of Trammell Crow. “The Canadians are known for overpaying. And in the land business they’ve created pretty much of a flood. But within the industry they’ve attained a high visibility, so perhaps their image is greater than their substance. The Canadians could overbuild – especially if they build everything they say they will.” Soaring interest rates may temper that.

The full effects are difficult to evaluate because so many of the Canadians’ major projects are now only on the drawing board; their impact may not be evident for a few more years. But certain trends are apparent. “I would say they’ve accelerated the pace of development in Dallas,” says Reynolds of Henry S. Miller. “Very definitely.”

From the Canadians’ point of view, they’ve only just begun. Dallas has exactly what they need to fuel their thirsty real estate machines – rapid growth. And for the timebeing, that factor doesn’t appear likely tochange. Not to the Canadians. “I’ve beenhere a year and a half,” says Rodney Scalesof Rostland. “And I still get impressed bywhat 1 see.”