I have vivid memories of being in a broker meeting many years ago talking about development land in Vancouver. Our team's comment was that it felt expensive. I mean, Toronto was expensive, and Vancouver was even more. Why? It has one-third the GDP of Toronto. The response we got was something like this: "Yeah, Vancouver may seem pricy, but you just need to get into the market. Then in 5 years you'll be happy you did."

Well it's been more than 5 years and now this is the market:

The market for development sites is being tested by a roughly 50-per-cent drop in value since 2022, according to Mark Goodman. The principal of Goodman Commercial Inc. said Broadway Plan sites, for example, were selling for about $200 per square foot buildable three years ago. Sellers can now expect closer to $100 per square foot buildable, he told BIV. Goodman currently has three Broadway Plan listings.

Of course, Toronto is in a similar situation today. If there's no market for new condominiums and apartment rents aren't growing, then high-density land values are going to feel the impact. But I do think it's interesting that, in some ways, our response was being anchored by our experience in Toronto. What we know, and have accepted, often becomes a baseline for assessing if something else feels expensive or cheap.

I sometimes see the same thing with long-time developers. They remember what they used to sell and/or rent apartments for, and have a harder time accepting today. But this is a positive thing if it compels greater deal scrutiny. Advice like "you just need to get into the market" is never sound. But if you were to take this approach, I would bet that today is a better time than 5 years ago.

Cover photo by Angie on

Development land, as we often talk about on this blog, should be the residual claimant in a pro forma. Meaning, start with your revenue, subtract your costs and required margin, and then see how much money is leftover to pay for the land. This is, in theory, how you should value land.

It's also the most disciplined way to go about your underwriting. In fact, it can be beneficial to not know the asking price or broker guidance for a new site until you've completed this exercise. That way you won't bias yourself.

However, in practice, it can be difficult to do all of this. In a rising market, you might find that there's always some other developer who is willing to be more aggressive on their assumptions, which means they will be willing to pay more for the same piece of land.

And so if you want to be in the game, you might find yourself doing the exact opposite: starting with the land price and then trying to figure out how to make the rest of your model work. We've all been there.

During this stage of the cycle, you get punished for being conservative and disciplined -- you don't win sites. But when the market turns, discipline and conservatism get rewarded handsomely. You then become thankful for the deals you didn't do. And I'm sure that many prudent risk managers are feeling this way right now.

It is very challenging to underwrite new sites today. Many of the assumptions that go into a pro forma are unclear and unknowable. And so the spread between what developer's models are telling them to pay and what landowners want to sell for is often significant. That is why everyone is trying to find "creative deal structures" that can be used to close this gap.

I have vivid memories of being in a broker meeting many years ago talking about development land in Vancouver. Our team's comment was that it felt expensive. I mean, Toronto was expensive, and Vancouver was even more. Why? It has one-third the GDP of Toronto. The response we got was something like this: "Yeah, Vancouver may seem pricy, but you just need to get into the market. Then in 5 years you'll be happy you did."

Well it's been more than 5 years and now this is the market:

The market for development sites is being tested by a roughly 50-per-cent drop in value since 2022, according to Mark Goodman. The principal of Goodman Commercial Inc. said Broadway Plan sites, for example, were selling for about $200 per square foot buildable three years ago. Sellers can now expect closer to $100 per square foot buildable, he told BIV. Goodman currently has three Broadway Plan listings.

Of course, Toronto is in a similar situation today. If there's no market for new condominiums and apartment rents aren't growing, then high-density land values are going to feel the impact. But I do think it's interesting that, in some ways, our response was being anchored by our experience in Toronto. What we know, and have accepted, often becomes a baseline for assessing if something else feels expensive or cheap.

I sometimes see the same thing with long-time developers. They remember what they used to sell and/or rent apartments for, and have a harder time accepting today. But this is a positive thing if it compels greater deal scrutiny. Advice like "you just need to get into the market" is never sound. But if you were to take this approach, I would bet that today is a better time than 5 years ago.

Cover photo by Angie on

Development land, as we often talk about on this blog, should be the residual claimant in a pro forma. Meaning, start with your revenue, subtract your costs and required margin, and then see how much money is leftover to pay for the land. This is, in theory, how you should value land.

It's also the most disciplined way to go about your underwriting. In fact, it can be beneficial to not know the asking price or broker guidance for a new site until you've completed this exercise. That way you won't bias yourself.

However, in practice, it can be difficult to do all of this. In a rising market, you might find that there's always some other developer who is willing to be more aggressive on their assumptions, which means they will be willing to pay more for the same piece of land.

And so if you want to be in the game, you might find yourself doing the exact opposite: starting with the land price and then trying to figure out how to make the rest of your model work. We've all been there.

During this stage of the cycle, you get punished for being conservative and disciplined -- you don't win sites. But when the market turns, discipline and conservatism get rewarded handsomely. You then become thankful for the deals you didn't do. And I'm sure that many prudent risk managers are feeling this way right now.

It is very challenging to underwrite new sites today. Many of the assumptions that go into a pro forma are unclear and unknowable. And so the spread between what developer's models are telling them to pay and what landowners want to sell for is often significant. That is why everyone is trying to find "creative deal structures" that can be used to close this gap.