Outgoing CEO Ilse Treurnicht on “battling the beast” of MaRS’ West Tower and what comes next

ilse treurnicht

This past Thursday, MaRS announced it had secured $290 million from Manulife, Sun Life Financial, and iA Financial Group to repay its government loans.

Since it started planning construction of its West Tower in 2007, the innovation hub has experienced roadblocks and its fair share of controversy. Its US developer, Alexandria Real Estate Equities, stopped construction during the 2008 financial crisis, and for three years the project was halted.

In 2011, the government stepped in and loaned money to MaRS, including a $224 million loan, $65 million to buy out the facility’s US developer, $4 million in debt-service payments, and $16 million for the land.

With this $290 million financing, MaRS can now repay most of these loans. MaRS CEO Ilse Treurnicht spoke to BetaKit about the end of a long process of taking ownership of MaRS, and what’s next for the innovation hub.

Why did you pursue this round of private financing?

The first point is a pragmatic one obviously. We were keen to put in place long-term financing so that the projects would be stable as soon as was possible.

“Although I don’t think it was as visible to others, the province of Ontario made a calculated risk when they made the investment at the time.”

Once we removed the obstacles to leasing, [we wanted to] lease the building as quickly as possible because the demand was so high, so with a very attractive roster of tenants that made it possible for us to go to the market early. Taking advantage of an attractive environment was very important, but also to deliver on that commitment we always had, which was to repay the taxpayers and the province of Ontario as quickly as possible and put in place that long-term stable financing.

The circumstances made it possible to accomplish that well ahead of schedule, which was very good for the project. A number of the tenants have pretty advanced laboratory infrastructure, and so building out that infrastructure from the time it’s leased to occupying takes a few months. At the moment, the building is about 70 percent occupied, and a big chunk of tenants are just moving in now.

Demand is really off the charts, so we already started looking for satellite space in the district to accommodate the level of interest. The really exciting thing is that we’ve been able to assemble a group of tenants that are entirely omniscient and represent obviously some extraordinary global brands, with AutoDesk, Johnson and Johnson Labs, Facebook, Paypal, and others, and also some top-notch research groups out of the University of Toronto and the University Health Network.

Why would this portfolio of names want to be in the West Tower?

Some of the tenants are particularly active in advanced scientific research, which is sort of the unique feature of the West Tower — [it’s] built as a very specialized infrastructure that can accommodate highly sophisticated scientific research. So for some of the tenants, that infrastructure piece is a highly important condition, and it’s perhaps only possible for them to do what they’re doing here, but on a much wider scale.

We have always had the mission to bring together the top researchers with young and scaling firms, with both local established corporate as well as multinationals plus investors. One of the very positive outcomes of this restructuring of the West Tower [and] in MaRS maintaining control over the project, is that we can really think about the tenants across the full four buildings, and get the right balance to bring this food chain of innovation together.

How do you strike the balance of making a profit fueling MaRS through the rental of the space but also making sure that certain types of companies are not priced out?

The attractiveness of the approach in building and having a space that is this scale — one million and a half square feet overall — and your desire to assemble this whole spectrum of people working across the lifecycle of innovation, is that you can find long-term leases with institutional partners like the University of Toronto and that gives the real estate itself sustainability.

Obviously, corporate multinationals pay market rents, and then you can allow the startup spaces to be graduated in terms of cost at a low cost for small startups, and as they scale they move to a slightly more increased [rate].


You’re not trying to make the financial model work on the backs of the young companies, and in fact, it gives you more flexibility. The really unique thing is that if this was really a pure real estate private enterprise, it would not make those amounts, as obviously it would try to optimize the rental income.

We are in a position as a nonprofit to strike that balance, and in a very attractive way leverage private capital because the overwhelming investment in building the infrastructure is private now, as it has always been intended to be. At the same time, [we want to] maintain the use of the space for public purpose, including growing a healthy ecosystem of startups.

We’ve been able to leverage some investment to build these very challenging early-stage startup spaces, particularly for biotech and physical sciences entrepreneurs who need laboratories and infrastructure that’s very prohibitive in terms of getting started and quickly derisking your science on a cost effective budget.

You mentioned that you’re 75 percent of the way back to refinancing the government loan, but when we were going through our numbers, there was a discrepancy in our research. When it comes to the total loan number, how much do you have left to repay of that percent?

The way the financing transaction has been structured is that the $290 million that was raised from the three private investors has repaid $290 million of the provincial loan with interest. We’ve created a full borrowing envelope of an additional 25 percent, which is roughly about $90 million.

We’ll use some of it is a buffer that’s available, but what’s unique about that last 25 percent is that it’s now invested side by side with the private investors over this 19-year mortgage period, so the province of Ontario will reap the benefit of an attractive rate of return alongside the private investors, and be fully repaid with interest over that mortgage period.

In the final analysis, all of the funds to the province will be repaid and our obligation was to repay the original loan, which was $224 million by the end of 2019. So we’re three years ahead of schedule, and have repaid substantially more than that $224 million target already.

MaRS Toronto

This was never a gift as it was sometimes presented. It was always a fully repayable loan. At the time, the province made its loan to help us get out of this very unprecedented situation with our US developers stalling the construction during the financial crisis, and then subsequently not being able to lease the building as a result of those lingering covenants.

[We bought] out the interests of our US developer, but it was always secured against the assets. Now, when the building was still only thirty percent leased, as it was at the time, there was a lot more risk involved.

Today, the remaining 25 percent investment in the building is entirely de-risked, the building is full, it’s been scrubbed up, down, and sideways by these three market-based investors, and the province will be able to benefit from that investment in the interest of taxpayers.

Is this the last big move you were looking to make before your successor is in place — or what else are you working on to close out the year and your term?

This was a very important piece to nail down so that we would have this physical asset, which has been a big focus of the early first 12 years development of MaRS — completely secure and stable and really ready to do the work it needs to do to fulfil our mission.

“It’s really important in these kind of projects to remind yourself that it takes time and none of it will be easy.”

It was really important for me to get this done so that the next team doesn’t have to spend time on it. The reality is that building the infrastructure has always been part of the task; I don’t think any of us who got involved with this project ever thought it would be easy to build something at this scale inside a non-profit, and obviously it became that much harder because of this unusual set of events.

I think the thing that is particularly exciting at the moment is that as we’re putting these foundational blocks in place for our real estate foundation, you’re really seeing incredible momentum in the ecosystem obviously not just at MaRS, but any region more broadly.

How is the search for your successor going?

I’m somewhat removed from it, but the board is actively involved in that and I fully suspect they’ll find somebody absolutely fantastic to take this adventure and move it to the next level.

From your tenure in this experience, are there any words of advice that you would leave for your successor?

Once we get to that time, now that I don’t have to be battling the beast of the building, I’m happy to think about that. But the overall lesson of this project is it was created with a very big ambition.

Building something at this scale and this level of ambition obviously takes time, and you have to keep your eye on the long game and that was particularly important as we were riding the storm. The wonderful result of that is that we’re now at the other end and are in a much, much better position than we were going in, because MaRS truly owns the assets. We have complete control over how it’s tenanted and how the physical infrastructure can be used.

I think it’s really important in these kind of projects to remind yourself that it takes time and none of it will be easy, and there will be bumps along the road. But the big idea is so much more important than that and you can now see it. This city now has a global hub that is totally on par with the best in the world, and we have the opportunity to put that to work for pretty significant benefit.

Although I don’t think it was as visible to others, the province of Ontario made a calculated risk when they made the investment at the time, and I think it’s very clear now with these tier 1 investors coming into the project that that was a smart financial decision.

In that sense, the taxpayers will not be on the hook for any losses, but in fact, will have both the financial rewards of the project itself as a real estate investment. These investors have obviously validated the financial liability of the project. The other data point is that through this process, a third party valued the building at well over $500 million.

This interview has been condensed and edited for clarity.

Douglas Soltys

Douglas Soltys

Douglas Soltys is the Editor-in-Chief of BetaKit and founder of BetaKit Incorporated. He has worked for a few failed companies and written about many more. He spends too much time on the Internet.

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