MAY 22, 2013

Return of the
Industrial Condo

By: Rich Letkeman

A chat with Michael Butler of Nova Ridge Development

The Business Development Bank of Canada is very much involved in supporting entrepreneurs. And so is Michael Butler of Nova Ridge Development, a company that champions the concept of office and industrial condominiums.

BDC, formerly known as "BDBC",now more than ever is trying to meet the deficit of entrepreneurs in Canada who "make it" as start-ups by moving successfully into the commercialization phase. It's just part of BDC's core mandate of financing start-ups of small and medium-size businesses. But over the past decade or more, Ontario's R&D ideas, emanating from all ages of basement tinkerers and career professionals, are noted not only for their innovative designs but also for their habit of bombing before booming.

Entrepreneurs need Support

Call it what you will: an inability to understand marketing and networking, a poor handle on competition, or simply an insufficiency of funds, or knowhow, or know-who, to attract them.In the early '90s there was a frenzy of industrial condominium developments in Mississauga and the GTA that attracted many entrepreneurs and resulted in many BDBC business loans. Start-ups did happen, but the condominium genre was not enduringly popular with landlords and finance companies. Condominium developments lost favour. and big industrial parks were built containing units that were too big for typical entrepreneurs. Often they overspent. At times, mortgage rates were too high, and at other times the incentives for start-ups didn't exist.

Smart Solutions

The Aero Business Campus off Airport Road, on Slough Street west of Pearson International, has a total of 63 buildings ranging from 15,000 to 50,000 square feet. "That's too big for your typica lentrepreneur", said Butler," and that's where we make our entry-into a niche in which small entrepreneurs have been frozen out. "The owner of the 63 buildings at AeroBusiness Campus is a commercial investment group known as KingSett Capital, which has been off-loading them to individual owner-operators of businesses. Butler last year purchased three of the buildings, or 100,000-aquare-feet of them and has split them into 34 condominium units averaging only 3,000 square feet but no more than 10,000. "That's much smaller than the previous size and far more attractive to the average entrepreneur." The concept that lures buyers into condominiums is a solid one. It's based on the fact that it's much more logical to own the real estate you're operating in, especially if chances are you'll wear a silly grin when it appreciates."

Ownership Advantages

Butler's advertising motto is "Why rent instead of own?" He was energized when BDC agreed to 'partner' with Nova Ridge -- and with its future condominium owners, and their businesses, and their advisory activities and financing, along with other nodes that BDC has developed in recent years, But the advantages of owning a small or medium condominium don't end there, "You can buy what you need and add or renovate what you need. You don't end up with escalating-rent agreements. You belong to a condominium corporation in which you have meetings that easily develop into business think-tank networks. You have a reliable maintenance regime at rates similar to the residential kind. You reap real-estate ROIs if they happen. You can lease it out, or part of it, if your business has taken on too much bulk. You can sell either your business or your unit, or both. You can buy another unit if you need to invest." The advantage for all parties involved is something Butler discovered recently: there is a significant advantage for all parties involved is something Butler discovered recently: there is a significant. "It's a trend, and it's especially true at current mortgage rates," he said.

Easy, Efficient and Entrepreneurial

Nova Ridge is busy completing comprehensive upgrades to the buildings which, he says, are in excellent shape and have been well maintained since 1980. They have received or will receive new windows "all around", all-new finishes, exterior minor repairs where needed, cosmetic work and many other minor upgrades."Incorporating a condo corp is about a six-month proposition", he says, "full of very strict Mississauga regulations that probably wouldn't let anything by you. So it's full of discipline and respectability."I believe the bottom line in all this is the comfort zone, not only in owning your own, but being able to deal instantly with your own local body rather than an arm's but being able to deal instantly with your own local body rather than an arm owner-operators are on the verge of receiving their corporation approval, even while purchasers who have bought their units are able to move in immediately. His deals aren't finalized until the corporation officially exists.

Good Financial Sense

A typical deal is about as straightforward as they come: A 2,500-square-foot unit would cost $135 per foot, to which the buyer might add $20 per foot worth of renovations, which are a specialty of Nova Ridge's property management department. The $387,500 total might entail a 15-per cent downpayment, resulting in a $329,375 mortgage, amortized at 5.0 per cent over 25 years, hence costing about $2,000 per month plus a maintenance fee of $500, Maintenance at this condominium site would involve landscaping, gardening, snowploughing and not much else. A growing reserve fund is anticipated. "The $135 per square foot at Aero Bu s i ne s s Campu s Comme r c i a l Condominiums, shor t-formed 'Aero Commercial Condos,'is about half the cost of new builds",said Butler. "New condominium developments are prohibitive in today's economy and won't be happening soon. That makes ours a viable one and pretty big, and there will be more of them if we find suitable candidates for them. All of them from the '90s would have to be altered to today's standards."


Aero Business Campus is a multitenant rental complex and there aren't a lot of those around, either, except for resale standalones of 2,000 to 3,000 square feet." Nova Ridge has seller-buyer relationships with its user-operators at this point, but also could be called a property manager on the site, particularly since it has been in the business of renovating for many years.