Concrete Capital
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Concrete Capital

Thomas Rupert Heinrich

Montreal is developing upwards. Immense luxury condo developments sprout like crystalline weeds across the city, as housing across town grows increasingly inaccessible to the ordinary person. To the common person their presence is a little puzzling: who, they wonder, would blow $300,000 to live in anonymity in a tiny studio, 61 storeys off the ground? In an analysis and creative response to the Maestria Condominiums project in Montreal’s Quartier-des-spectacles, Thomas Heinrich breaks down how residential buildings serve primarily as financial assets in accordance with a financial system that is dissociated with the realities, needs and values of local communities.

Thematic

Professor

Location

Date

Real Estate Development

Marie-Sophie Banville

Montreal, Qc

May 2020

There is seemingly nothing more concrete, more permanent than a city. The infinite tons of cement, asphalt, stone, wood and glass anchor it into the bedrock below for centuries, maybe millennia to come. Living in a city, you can feel this sense of permanence. It also feels as though it has always been there. The large boulevard or the dark side street, the brick duplex or the glass skyscraper may as well have grown from the ground.

In essence, a city is meant to give humans the possibility to live and thrive, safe from external threats. A city is essentially a large shelter, regulated by political and commercial systems that ensure its proper functioning and, of course, growth. But what makes a city grow? Ask the average economist, and they will give you a simple answer: demand.

And in a city like Montreal, demand there certainly is. With housing prices soaring and wages stagnating, more and more people are growing desperate for an affordable place to live. Accordingly, it appears that this demand is met by fresh supply at every corner. Immense cranes loom over large empty pits from one tip of the island to the other, filling themselves with brand new housing units, piling themselves on top one another year after year. But, according to the data, these real estate projects are achieving very little in actually providing more housing in Montreal. How is this possible?

To understand this conundrum, this article looks towards Montreal’s currently largest real estate project, located in the heart of the city’s high-profile district of Quartier-des-Spectacles: Maestria Condominiums. By going back in time and tracing the financial transactions that allowed for its conception, we come to see that this type of construction is created not with the intent of housing people (which, I think you will agree, should be an essential quality of a residential building) but uniquely of generating flows of capital. In other words, the main function of this residential complex – constituting over 1,000 housing units, occupying over 9 km2 of land, demanding the extraction and shipment of thousands of tons of raw materials, changing Montreal’s landscape forever – is to serve as a financial asset for its shareholders. 


1. An inconsistent (but basic) framework

Before we dive into Maestria and what it means for the future of Montreal, it is important to contextualize the reader with the Montreal’s current housing landscape and to underline what may be an important flaw in the economic framework that guides real estate development in this city.

There is growing concern that Montreal will follow in Vancouver and Toronto’s footsteps to become the third major Canadian city facing a housing crisis. Some claim it is already upon us. Over the last 20 years, housing prices in La métropole have grown exponentially while income has stagnated. Fewer and fewer Montrealers can afford renting, let alone purchasing homes in once-affordable neighbourhoods.

In 2019, apartment vacancy rates in the city reached a 15-year low, dropping to 1.5 percent (down from 1.9 percent in 2018) making affordable homes increasingly difficult to come across, according to a report from the Canada Mortgage and Housing Corporation (CMHC). Neighbourhood housing committees are reporting daunting increases in eviction and repossession notices. In an article by CBC News in January 2020, La Petite-Patrie resident Mitchell Thompson vividly described the pains of living with home insecurity: “...it's hard to sleep at night, because you're wondering where you're going to live. You're crying, you're stressed — you don't know what to do."

But according to the same CMHC report, there’s a simple explanation for what the city is experiencing: “rental housing demand … clearly increased at a faster pace than supply over the period from October 2018 to October 2019.” The report attributes this rise to an increase in migration to Quebec and to the high proportion of non-permanent workers living as renters (92 percent). Once again, the formula fits the narrative: more people means fewer houses, fewer houses means higher prices, higher prices means lower vacancy rates. And yet, there is an important inconsistency with this story.

When the CMHC report was issued in 2020, Montreal actually gained 8,500 new rental apartments that year (this construction boom is part of the municipal government’s plan to pump out 12,000 new affordable housing units by 2022). In comparison, the average yearly gain during the 2011-2014 period was a mere 1,600. And yet during this period, the vacancy rate ranged from 3.4 % (2014) to 3.9 % (2016), before plummeting to 1,5% in 2019. In other words, the low rate of housing construction in 2011-2014 coincided with high rates of vacancy, while an unprecedented rate of housing construction resulted in record low vacancy rates. In short, there appears to be no clear correlation between the quantity of housing units built and the number of units available on the market.

So what went wrong? Well, it appears that the old supply-demand equation isn’t foolproof. It seems like the answer may lie in the hyphen. Maybe the answer lies in how the supply is –for lack of a better word– supplied. To better understand how the supply can fail at its basic function, let’s turn to our case study.

2. Maestria

Maestria Condominiums is a luxury residential development being built in the heart of Montreal’s cultural centre, the Quartier-des-Spectacles. The condo complex is the result of a three-way partnership between the development mogul Devimco, the real estate investment firm Fiera Capital and, perhaps surprisingly, Quebec’s largest solidarity fund, the Fond de Solidarité FTQ. The Maestria project envisions twin towers, one rising 58 stories (185 meters) and 61 stories (198 meters) into the sky, joined by a glass bridge offering, according to the promoters, a “front row centre [seat] overlooking Place des Festivals”. Composed of over 1,000 housing units (including studios and penthouses), the immense complex also vaunts its “prestigious common areas and unique location at the crossroads of culture, the arts, major academic institutions and the metro.”

The condo complex offers lofts beginning at $284,900, single-bedroom beginning at $389,700, double-bedroom units beginning at $547,500 and luxurious penthouses beginning on the up-side of $1 million. 

In contrast, the median income for a household in Montreal in 2015 was $61,790.

The land that now serves as Maestria’s site was bought in 2017 for the humble sum of $70 million. The purchase encompassed four different lots which had been mostly left vacant for several decades; many had been used as parking lots (according to a decisional document from the Ville-Marie borough council of March 2019). One site however, was home to the popular Le Spectrum concert venue from 1982 to 2007, described as a “cultural marker” and “neighbourhood cornerstone” by the Montreal Gazette’s Lindy Gyulai. It’s closure and demolition in 2008 was widely lamented across the city, as it represented for many the unglamorous, underground cultural richness that characterized the city. In its 25-year lifespan, Le Spectrum hosted a wide range of international artists seeking a humbler venue, such as The Police or Miles Davis. It was also home to local heroes like Jean Leloup and Martha Wainwright. The demolition of Le Spectrum symbolized a turning point in Montreal’s cultural scene, a sign that alternative artistic epicentres were being substituted for hyper-manicured and elite spaces epitomized by Place-des-Arts.  

In 2019, two years after Maestria bought the property, Otéra Capital Inc. (an affiliate of Groupe Desjardins) issued the consortium a mortgage of $550 million. To help you better understand the sheer magnitude of this sum, it is nearly two thousand times Montreal’s yearly budget for road infrastructure ($282,008), and nearly a thousand times its yearly budget for public transit ($599,280).

Maestria will mark Montreal’s landscape for decades, its imposing and gleaming twin towers dominating the centre of one of North America’s oldest and most storied cities. Its architectural importance also begs a major social question: who will live in it? Whose interest is it in to build such a thing when more and more Montrealers can’t even afford a regular home?

3. Cities built on fictitious capital

Maestria caters to an elite socio-economic class with a specific lifestyle, this is evident. Yet, more importantly, its presence illustrates the type of mechanism that, on paper, produces more housing within a city in desperate need, without inasmuch improving access to housing.

Developments such as this one exists not to house anyone, but rather to stock vast amounts of capital. This sort of cognitive dissonance (i.e. conceiving a residential development without the primary intent of housing anyone) is enabled thanks to the fictitious nature of real-estate finance. It is fictitious not because it doesn’t exist. On the contrary, it exists thanks to intangible, yet enormous sums of money that manifest themselves in two ways: speculation and credit. Because these profit-focused methods exist uniquely under the assumption of capital return and not on any concrete occurrence in relation to concerned communities or ecosystems, they are distinctly removed from reality. As we will see in this section, speculation and credit are mutually reinforcing forces that can generate colossal sums of money out of thin air.

And as we saw in the 2008 financial crash, these make-believe numbers can have disastrous consequences. 

3.A. The long process of speculation


In 2003, two limited partnership groups bearing the inconspicuous names “Société en commandite 1190 Jeanne-Mance” and “Société en commandite 1250 Jeanne-Mance” bought two of the four lots that would eventually become the Maestria construction site. One cost $1,7 million (lot no. 1 340 653) and the other $840,000 (lot no. 1340 656).


In 2004, the City of Montreal expropriated the third lot (no. 1 340 657) and put it under reserve. In 2006, the fourth lot – no. 1 340 640 – site of the iconic Le Spectrum theatre, lay lonely in a wasteland of rubble awaiting redevelopment. That year, the property was put under emphyteusis (a legal procedure of the Quebec Civil Code under which a building can be acquired for a period of time, with the agreement that the property’s value can be increased without compromising or changing the structure) by a group named “Société en Commandite Benadev”. In 2008, the site was finally purchased by a numbered company: 9225-1904 Québec Inc.” for $12 million.

A casual reader could easily get lost trying to keep track of these oddly anonymous names and their seemingly innocuous transactions, least of all try to figure out what a “limited partnership” actually is and does. But it turns out the confusion is unnecessary, for they have one common denominator: All these groups were essentially created and run by, either as an associate or as lone shareholder, by the Fonds de Solidarité FTQ, the investment arm of Quebec’s largest union federation.

And so, by 2008, the FTQ had come in indirect possession of three-quarters of the site for $3,8 million. Then in 2011 and 2012, its numbered company 9225-1904 Québec Inc. rounded up the remaining three lots for $16,4 million. Through these small, limited partnership groups, the FTQ essentially sold to and bought from its own self.  

Then came the final coup-de-grâce. In 2018, 9225-1904 Québec Inc. sold all four lots in a neat little bundle to a new consortium on the market, Maestria Terrain Inc. for a total price of $70 M. Being one of Maestria’s leading investors, the FTQ essentially sold the land to itself one last time. Now, as construction begins, it can sit back, wait and reap the benefits.


By retracing the transactional history, we come to see how a private entity can bolster that value of land without ever physically altering it, 

As Quebec’s largest syndicate, the FTQ describes itself as a “socially responsible investor committed to sustainable economic development where people come first” (FTQ, Who We Are). In 2019, it was responsible for supporting over 215,000 jobs and 694,000 shareholders across the province (2019 Operations and Sustainability Report). Among other things, the fund is responsible for providing retirement savings to many of these shareholders. And so, this particular investment on behalf of the Fonds de Solidarité presents an ethical paradox: siphoning capital into major, luxury real estate, heightening socio-economic disparity and exacerbating a growing housing crisis… all for the sake of social benefits.

Maestria will bring to the city over a thousand living spaces available to a minute fraction of the local population. It will require the extraction of thousands of tons of raw material, pumping out more greenhouse gases into the atmosphere (lest we forget that the construction industry accounts for 39% of the world’s energy-related CO2 emissions). It will impose drastic changes onto the city’s skyline, scale and sense of place. And yet, it will provide nearly 700, 000 Quebecers with a comfortable retirement plan.  

3.B. Speculation enabled by a strong economy

Let’s take a moment here to understand the remarkable, yet by no means unusual, way in which this project was conceived. Within 10 years, a property worth $3,8-million subtly morphed into a $550-million property without ever actually changing. How did a piece of land that sat empty for over a decade generate so much money? Ask the CMHC and they will tell you to look at the growing demand in the real estate market, and yes, demand certainly plays a part. Demand does respond to good location, population growth, proper infrastructure and planning approvals, all of which apply to this particular site. But perhaps there is a more important, and often ignored, factor that allows for this magical production of capital is easy access to credit, which characterizes a strong economy.

Credit is deemed most accessible when interest rates are low, a quality that generally characterizes Canadian credit, which generally hovers under the 3-percent interest mark. (With COVID-19, the Bank of Canada announced in March it would go so far as to drop its rates a full percentage point in order to support homeownership, bringing some interest rates in British Columbia, for example, as low as 1.95%). The FTQ was therefore encouraged by these low mortgage interest rates to buy the four lots in the first place (and make a killing later as partners on the Maestria project). Looking towards the future, the FTQ was able to purchase a piece of land with the utmost confidence in getting substantial returns on its investment. What’s more, real estate is generally considered one of the safest investments on the market.

Easy access to credit means banks are doing well. It means they are generating enough liquidity (cash, in other words) to be able to lower their interest rates. But banks would never make much money if they relied only on interest rates to capitalize upon. Instead, they have mortgage-backed securities (MBS), a kind of mind-bending financial scheme in which a bank sells a bundle of mortgages to investors, who then sell it among themselves. Think of it like seals bouncing a ball to one another in a zoo, except that in this case, the ball gets bigger after each bounce. For example, a bank could sell an investor a package, or bond, of 100 mortgages (and interest fees) with the assurance that most mortgages are to be paid on time. After that, the bond (and its mortgages inside), floats freely on financial markets, is sold and bought continuously, generating ample capital for the banks and investors. You probably heard a lot about MBSs in the aftermath of the global stock-market crash in 2008, which was in hindsight identified as the root cause of this economic catastrophe.

Because this capital is in a constant state of transaction, it never really materializes itself. The money produced on financial markets unfortunately isn’t stored in gigantic safes. It simply exists as numbers on a computer or a piece of paper. For this reason, we can justifiably say it is – however strange this sounds – fictitious. Especially as investors get more and more aggressive, and credit predominates these transactions, this capital is caught in a perpetual swirl within the financial world. It is as though someone at the zoo had lost the keys to the seals’ enclosure. 

3.C. Property Tax

Finally, municipal governments are more than aware of the amount of intangible capital that circulates in the world of real estate finance. As a public institution, municipal administrations can’t capitalize on many things. But if there is one thing they can easily access, it’s real estate. Property tax is a major funding source for cities, and one the can easily monopolize through legislation and regulations. While municipal income sources vary form once city to another, Montreal presents a situation of quasi-total dependence on property tax. Over three quarters – 76.1 percent – of its yearly funding comes is issued from it. Like all dependencies or addictions, a vicious cycle emerges in which it is in the city’s interest to promote large-scale developments, in which each and every unit can be individually taxed.

It is consequentially also in the city’s interest to heighten the value of land on its territory as much as possible. As mentioned before, its investments in infrastructure and transit can raise the value of the land around it considerably. In other words, make an area desirable and you’ve increased your real estate value. And the context in which Maestia arose points perfectly to this type of scenario. In 2006, for example, the City of Montreal invested $14 million in the Quartier International, the downtown district on which is located Maestria today; it generated that year $20 million in property taxes.  

4. Conclusion: a city is a financial asset

As much as it is a timeless mass of cement, asphalt and stone, is produced by the fictitious nature of real-estate finance

At best, a financialized housing system sustains one thing: the market. The more we begin questioning the processes through which residential buildings are created, the more we understand that they are not as much structure to live in but rather structures in which to store unthinkable accumulations of capital. Maestria was not conceived with the intention to create homes. Maestria is just a physical shape, something to do with all this capital, built in the hopes of generating even more. The involvement of the FTQ in this instance illustrates just this, as their real interest lies not in providing housing per se, but rather in providing benefits for their shareholders. 

All large players – banks, governments, corporations, private speculators – can have a stake in the promising venture that is massive real estate development. As we’ve seen, a municipal government so dependent on property tax can only dream of the revenue extracted, and justify its approval as a measure to prevent urban sprawl or to attract tourism.    

This is what a financialized housing system looks like. In this scope, we mustn't be surprised anymore by countless glass towers popping up each year. We mustn't be surprised by their social, environmental, cultural and architectural impertinence. We mustn't be surprised by who they cater to and what values (or lack thereof) they present. All this is peripheral, secondary.

Maestria is, of course, an extreme example of financialized real estate, but it highlights a standard process of land speculation and investment. Yes, demand is on the rise. Montreal’s population does grow each year and housing must be found. But “Just build it” is not a linear solution. This isn’t Field of Dreams.

Just like the City’s new Règlement pour une métropole mixte bill will not ensure better access to housing, simply assembling more houses and condos will not lead to a healthy, balanced housing system unless it is supplied outside a financialized framework. (Keep in mind the differences between “financial” and “commercial” and “economic”). If not, we’ll remain but sprinting hamsters in a spinning wheel.

In this light, a city reveals itself to be not a place in which to live, but as a tool with which to make money out of thin air. If it did evolve and grow pragmatically, according to the needs, desires and everyday realities of its inhabitants, the multiple Maestria-esque projects that thrive across the city (1 Square Phillips, Le QuinzeCent, Victoria sur le Parc, YUL Condos, Solstice Montréal …) would certainly have no future.

If we could just see them all for what they are – speculative castles in the sand, shimmering mirages  – maybe we’d be getting somewhere. If we could only see these buildings as the financial sinkholes they really are, built as instruments of finance, our view would be cleared to start giving real shape to our city.

5. Uncovering the financial fictions that build a city


Imagine yourself strolling down rue Sainte-Catherine at night. Maybe you’re returning home from a night out, maybe you are heading to AntiCafé to cram a few more hours of studying, maybe you are heading to the opera with your spouse. As you cross de Bleury Street, heading east, you come across a strange sight. A long stretch of numbers covers the plastic mesh covering the fence that runs up and down the sidewalk.

Puzzled, you step back. It’s a projection, you realize now, coming from the building across the street. You distinguish a map, then numbers; what looks like prices and dates. It’s all very confusing. You make your way forward, seeing that with each new date, the prices keep growing. Millions and millions of dollars. Finally, you arrive at the end of the fence, and the numbers stop. Then you look up.


At the end of the stretch is a short black building with the words “Maestria Condominiums” written in tacky gold lettering on its side. On its front facade is projected in enormous numbers “$550, 000, 000”. Then you understand. This is the value of the piece of land before you. 

The absurdity of it all sinks in. A bit dazed perhaps, you return to where the numbers begin. You study the map. Yes, you recognize the streets. Trying to stay out of the way of the projection beam, you run your finger along the first row of numbers, then the second. They seem so small, so innocent. You remember those days. You remember this place, a scruffy parking lot where you smoked with your friends after Beirut opened the Jazz Fest in 2015. You make your way forward, back up the numeral crescendo, reaching that half-billion-dollar figure.

A few days later, you passed a similar display on Aylmer Street, off de Maisonneuve. 1 Square Phillips. Same story.

A few days after that, you see another one on René-Lévesque Boulevard, near Mackay. YUL Condominiums. Same story.

And then you understand that a city’s a paradox.

6. Works Cited

“CMHC Data: High Housing Vacancy Rate.” Corporation des propriétaires immobiliers du Québec, 12 Nov 2015, https://www.corpiq.com/en/news/445-cmhc-data-high-housing-vacancy-rate.html. Accessed on 14 May 2020.

Code civil du Québec. Article 1195, Section III, Chap. CCQ-1991.. Web. 18 May 2020.  

Connolly, Joannah. “Interest rates on new mortgages increasing, despite Bank of Canada rate drop.” Business Vancouver, 23 Mar 2020, https://biv.com/article/2020/03/interest-rates-new-mortgages-increasing-despite-bank-canada-rate-drop

D’Amours, Matt. “Evictions on the rise as Montreal's vacancy rate hits 15-year low.” CBC News, 24 Jan 2020, https://www.cbc.ca/news/canada/montreal/rosemont-petite-patrie-montreal-housing-vacancy-evictions-reposessions-1.5438084

Dunlevy, T’cha. “From the archives: History is closing up shop as Spectrum shuts down.” Montreal Gazette [Montreal], 23 Oct, 2018, “https://montrealgazette.com/entertainment/local-arts/from-the-archives-history-is-closing-up-shop-as-spectrum-shuts-down/

Gyulai, Linda. “New project expected for site of old Spectrum in Quartier des spectacles.” Montreal Gazette [Montreal], 23 Oct 2018, https://montrealgazette.com/news/local-news/new-project-expected-for-site-of-old-spectrum-in-quartier-des-spectacles/

“Global Status Report 2017.” United Nations Environment Programme, p.6, 2017. https://www.worldgbc.org/sites/default/files/UNEP%20188_GABC_en%20%28web%29.pdf . Accessed on 14 May 2020.

“Rental Market Report: Montreal CMA.” Canada Mortgage and Housing Corporation, 2016, https://assets.cmhc-schl.gc.ca/sf/project/cmhc/pubsandreports/esub/_all_esub_pdfs/64411_2016_a01.pdf?rev=e1e7b36d-68d8-4170-9042-a366db2f04d8 . Accessed on 15 May 2020.

“Rental Market Report: Montreal CMA.” Canada Mortgage and Housing Corporation, 2020, https://assets.cmhc-schl.gc.ca/sites/cmhc/data-research/publications-reports/rental-market-reports/2019/rental-market-reports-montreal-64411-2020-a01-en.pdf?rev=a78c1a15-9219-4802-abf1-71616ccc2a84. Accessed on 12 May 2020.

Scott, Marian. “As Montreal's vacancy rate plummets, Mayor Plante seeks funding help.” Montreal Gazette [Montreal], 16 Jan 2020, https://montrealgazette.com/news/local-news/mayor-addresses-housing-crisis/

Statistics Canada. “Income Highlight Tables, 2016 Census.” Statistics Canada,  https://www12.statcan.gc.ca/census-recensement/2016/dp-pd/hlt-fst/inc-rev/Table.cfm?Lang=Eng&T=102&PR=0&D1=1&RPP=25&SR=1&S=108&O=D

“The Creators.” Maestria Condominiums. https://www.maestriacondos.com/en/creators/. Accessed on 2 May 2020.

Normandin, Pierre-André. “Montréal veut construire 12 000 logements d'ici 2022.” La Presse [Montreal], 25 Oct 2018, https://www.lapresse.ca/actualites/grand-montreal/201810/25/01-5201696-montreal-veut-construire-12-000-logements-dici-2022.php

O’Brien, Frank. “Emergency Bank of Canada rate cut will add fuel to housing sales.” Western Investor, 13 Mar 2020, https://www.westerninvestor.com/news/finance/emergency-bank-of-canada-rate-cut-will-add-fuel-to-housing-sales-1.24097595

Ville de Montréal. “Toutes les taxes comptent.” Budget Montréal 2019, p.1, 2019. http://ville.montreal.qc.ca/pls/portal/docs/page/service_fin_fr/media/documents/2019_budget_fonctionnement.pdf. Accessed on 4 May 2020.

“Where Do Canada’s Greenhouse Gas Emissions Come From?” Prairie Climate Center, 7 Mar 2018, http://prairieclimatecentre.ca/2018/03/where-do-canadas-greenhouse-gas-emissions-come-from/. Accessed on 14 May 2020.

“Who We Are.” Fonds de Solidarité, FTQ. https://www.fondsftq.com/en/a-propos/qui-sommes-nous.aspx. Accessed on 3 May 2020

** All non-cited images are original photographs and photo manipulations taken and made by the author.



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The Office of Rules and Norms (ORN) is an arts-based transdisciplinary collective that engages with regulations, the rule of law and cultural norms. These engagements reveal, comprehend, play with, subvert, and transcend current ways of understanding and acting in relation to regulatory forces in order to make room for more equitable alternatives. In its attempts to query legal and behavioral urban infrastructures, the ORN specifically deploys art and design practice, culture, and methods along three axes:
Art as Subversion | Intervening in grey areas of regulation
Art as Pedagogy | Making public various forces and forms of influence
Art as Decision-Making | Reorienting modes of knowing and deliberating