The recently announced deal between Ivanhoé Cambridge and Metrolinx to build an iconic new bus terminal and office complex in the heart of Toronto was more than five years in the making.

Its origins stretch back to the time when the financial crisis was gaining legs. That's when Ivanhoé Cambridge bought a parcel of land at 45 Bay St.

Ivanhoé Cambridge, the real estate arm of pension fund Caisse de dépôt et placement du Québec, is a property behemoth with more than $40-billion in assets. It wasn't quite sure what it wanted to do with the property it was acquiring at the foot of Bay Street. But it knew that Metrolinx was exploring options to create a new bus terminal in the southernmost part of the city.

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Metrolinx is tasked with planning and improving transportation in the Toronto and Hamilton areas and runs GO Transit. At the time it was developing its mega-blueprint called "The Big Move," which outlined a new way of moving people around the region.

"When we looked around for the available [bus terminal] sites at that time, in about 2008-2009, there really was only one undeveloped site left that was in close proximity to Union Station and the Gardiner [Expressway] and Lakeshore Boulevard – 45 Bay was that site," says Metrolinx president and CEO Bruce McCuaig. "And it was owned by Ivanhoé Cambridge."

That means the blockbuster deal that was announced in September for the $2-billion project that includes the bus terminal and two office towers was first kindled more than five years ago, when Metrolinx knew it wanted to be on that site. So what took so long?

When Ivanhoé first bought 45 Bay St., which is currently being used as a parking lot, it was certain about only one thing – whatever it built there would include office space.

"It's a premier office location and really it's the last opportunity to do a significant office development on Bay Street," says Paul Gleeson, Ivanhoé's executive vice-president of global development. "So to go to an alternative land use, in our view, wouldn't have been the best decision.

"We always knew it was going to be an office development," he adds. "What we had to do was finalize our deal with Metrolinx. It's complex figuring out how to successfully integrate an operating bus terminal into a Class A office building."

Before the talks even started, Ivanhoé set about securing air rights above the railway tracks that run east-west between 45 and 141 Bay, which is the site of the Union Station Bus Terminal (there is also the Toronto Coach Terminal further north at Bay and Dundas Streets). With those rights in place Ivanhoé could begin to conceive of a project that used its property at 45 Bay and the bus terminal property at 141 Bay, connecting the two via the space above the railway tracks.

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The idea was that a new bus terminal would be built on the property that Ivanhoé owned, which is south of the railroad tracks, along with one office tower. Ivanhoé would buy the land under the existing bus terminal, which is north of the tracks, and that old terminal would make way for a second office tower.

Ivanhoé spent time debating whether to include a hotel, and eventually went through several design iterations that included retail or shopping before scrapping that concept – for now.

The team eventually came up with the idea of building an elevated park above the rail corridor. "We were dealing with the issue of how do you connect the two projects over the railway so that the tracks don't become an obstacle, they become invisible," Mr. Gleeson says. "In other words, how do you turn the tracks into an amenity?"

Video renderings show the park as an outdoor pavilion dotted with grass and trees that is accessible from each of the office towers. A spokesman for Ivanhoé said the detailed design of the park will be complete for the groundbreaking.

Mr. Gleeson is still considering adding retail to the project at some point in the future, but so far hasn't found a way to make it work. Because of the rail corridor, people would have to go up at least four storeys to any retail that could be built, and stores tend to thrive by making themselves easy for window-shopping customers to access.

Overall, Mr. Gleeson's main concern about doing a deal with Metrolinx boiled down to design. "The first thing you have to remember is the [office] tenants that you're going after," he says. "You're building a Class A product and want to make sure that the office building exudes that impression, that it's very distinct. When you go into it you shouldn't feel like you're going into a bus terminal and vice versa."

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For its part, Metrolinx was trying to accomplish quite a few things by moving its bus terminal, Mr. McCuaig says. Most importantly it wanted an indoor facility for its 55,000 daily customers that connects directly to Union Station so that bus passengers could quickly get onto trains. It also wanted to be as far south as possible, ideally south of the Gardiner Expressway, which would make it easier for buses to avoid having to drive under certain bridges. That would allow the use of more double-decker buses, which reduce operating costs because there is one driver for more passengers. Anne Marie Aikins, a spokeswoman for Metrolinx, said that while 45 Bay is just north of the Gardiner, buses will be able to exit from Lakeshore.

Once the talks between Ivanhoé and Metrolinx officially began, it took about three years. "Each of us had to mutually arrive at the same conclusion, that we could do it successfully and figure out the logistics," Mr. Gleeson says. The discussions were kept under wraps. "What you want to do is finalize your agreement between the two parties and not end up with a whole bunch of interference from the outside."

The final plan includes 250,000 square metres of premium office space, a larger bus terminal at the base of the tower at 45 Bay St., and a park above the rail corridor. Ivanhoé and Metrolinx held an international design competition to choose an architect, eventually narrowing the field from 10 to four to one, London-based Wilkinson Eyre.

Ivanhoé is still going through the planning process with the City of Toronto, and is in discussions with potential tenants. Construction is expected to begin in the spring of 2015, and the new bus terminal and first office tower could be finished in 2018.

The project is not without risk. Ivanhoé is going full steam ahead before having secured lead tenants. This at a time when many observers argue that Toronto's downtown office space is already being overbuilt. Brokerage firm Cushman & Wakefield forecasts that, as a result of a spurt in new construction, the vacancy rate for Class A space in the city's central business district will rise from 6.2 per cent this year to 9.1 per cent in 2016, while rents soften from $50.27 per square foot per year to $49.10.

Other towers going up include the Bay Adelaide Centre East by Brookfield Properties and One York Street by Menkes and HOOPP, both of which are scheduled to open in 2016. At the moment the finishing touches are just being done at RBC Waterpark Place and Bremner Tower, and looking out to 2017 there will be projects like the EY Tower at 100 Adelaide Street West.

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Jonathan Pearce, senior vice-president of office leasing in Toronto for Ivanhoé Cambridge, shrugs off concerns about overbuilding. Or, more accurately, he suggests they're not his problem. He believes that the new towers are attracting tenants such as banks that would have traditionally been in the older towers that have long defined "Bay Street" in the core. It's the landlords in those buildings who have got a problem, he says.

"What you've seen in the city of Toronto is that all the new buildings that are under construction or are being delivered are either fully leased or substantially fully leased by the time they open," he says. "So what seems to happen on the demand side is there's an overarching ground swell of tenants migrating from older legacy-style products into the new-style products that are clustered around where mass transit terminates."

In other words "the new buildings are going to lease," he says. "The real question is how do you manage the backfill. And Ivanhoé Cambridge is not really at risk of cannibalizing our own portfolio because we don't own any legacy office buildings in the downtown financial core at the time."

There is some phasing that's built into the project, or forced on it, because the new bus terminal (with the first office tower on top of it) needs to be up and running before the old bus terminal can make way for the second tower. That gives Ivanhoé, which is collaborating with Hines Canada Management ULC on the development of the project, more time to find tenants for the second phase.

But if the team has any concerns about not being able to secure tenants, they certainly aren't letting on. But Mr. Gleeson says he's confident tenants will be found in time, and notes that Ivanhoé has previously successfully started office towers in cities such as Calgary without preleasing. "Our team is proceeding full speed ahead right now on all fronts in terms of putting the shovel in the ground in the spring."