Tag: condo

• Housing policy in San Francisco

  The tech community has been receiving a lot of backslash in San Francisco as of late. And Peter Shih’s infamous 10 things I hate about San Francisco post certainly didn’t help. But I think there’s a bigger issue than just rich tech people driving up the price of real estate.

  I was reading Quartz this morning and I think they nailed it: 

  “But the blame shouldn’t go to the tech companies or their employees moving to San Francisco, however despicable some might be. Blame San Francisco for being pleasant, and its policymakers for being foolish: When a lot of people are moving to your city—San Francisco the city gained 50,000 new residents between 2000 and 2012, including some 25,000 between 2010-2012 and likely more since—home prices are going to increase unless you build a lot more housing.”

  I’ve talked about this idea before. But I wanted to break it down a bit more precisely.

  If San Francisco, the city, gained 25,000 people between 2010-2012, let’s say that the city gained roughly 8,300 people per year. I just divided by 3. However, if you look at the rate of new housing supply, you get a 10-year average of 2,350 housing units a year (from the Quartz article) and an even lower amount according to Atlantic Cities.

  Regardless, what you end up with is a pretty simple phenomenon: More people are moving to the city than new housing is being provided and that’s driving up the price of real estate. In fact, San Francisco allegedly only created 269 housing units in 2011! That’s the equivalent of only one fairly typical Toronto condo building going up (and we have hundreds under construction). No wonder there’s upward pressure on prices.

  So rather than just blame the tech community for the city’s housing problems, I think there needs to be a broader look at housing policy. If you really want to help affordability, here’s one simple solution: start building.

  2014.01.25

• Condo maintenance fees explained

  One of the objections I often hear from people regarding condominiums is that they don’t like the idea of paying maintenance fees. So I’ve been meaning to do a post for some time now that breaks down and explains exactly where that money goes.

  Here is a simplified example. It ignores some of the miscellaneous income that buildings usually receive (from guest suites, the party room, public parking and so on). And of course, these numbers will vary based on the age of the building, specific amenities, and any deficiencies it may have. Nonetheless, it should give you an idea.

  

  So assuming you pay $400 per month as a common element fee, a percentage of that will—or at least should—get immediately stripped away as a reserve fund contribution. Again this will depend on the age the building and the periodic reserve fund study that’s typically required to be done.

  After that you have the operating expenses. The biggest items you’ll notice are contracts and utilities. Contracts are things like janitorial services, snow removal, property management fees, security/concierge services and so on. They’re contracted items. Utilities are self explanatory. 

  Once all the operating expenses have been paid, any remaining money then goes to retained earnings and sits in the condo corporation to handle any other expenses that may arise.

  Looking at the total operating expenses ($263), you should notice that it’s only about 66% of the total common element fee ($400). A big chunk of your common element fee is actually going towards saving for the future. Assuming the building is being properly managed, I’m okay with this.

  If you have any feedback on my numbers, I’d love to hear from you in the comment section below or on twitter.

  2014.01.05

• Why real estate is an imperfect market

  I’ve said many times before that the real estate market is an imperfect one. Participants lack access to a lot of valuable information and there’s a significant amount of friction between buyers and sellers.

  A perfect example of this can be found in this recent Toronto Star article, which is suggesting (at least in the headline) that only about 23% of Toronto’s condos are owned and rented out by investors. The article is reporting on the Canada Mortgage and Housing Corporation’s annual publication called the Canadian Housing Observer.

  Of course, to come up with this number, CMHC is only reporting on data held by the MLS. It does not include units that may have been rented out via Craigslist, Kijiji, social media, a billboard in the lobby, or some other means. And I would argue that the rental side of the marketplace has a much stronger tendency to go outside of MLS as compared to sales.

  So what what this means is that we have absolutely no idea what the actual percentage of investor owned units in the city really is. Here’s how CMHC put it:

  Mathieu Labarge, CMHC’s deputy chief economist, acknowledged that “to complete the picture there’s a need for data,” and it simply doesn’t exist.

  Nobody seems to know exactly where buyers, or their money, is coming from, why they are buying and how they intend to use the condo.

  In reality, the investor percentage is going to be higher:

  “We think the number is closer to 50 per cent,” says veteran Toronto development consultant Barry Lyon. “The data they (CMHC) are using has some shortcomings. It’s only part of the story.”

  Now, I don’t have the answer, but I think it’s pretty safe to say that consumers and the market as a whole would be better off if it had all the information.

  2013.12.23

• Q&A on Toronto’s condo rental market

  Earlier this week I connected with a Ryerson student doing a piece on Toronto’s condo rental market. She emailed me and asked if I would mind answering a few questions. Here are my responses.

  Generally speaking, why is Toronto continuing to see such a rapid increase in the number of condos in development? 

  A lot of what we’re seeing is policy driven. It stems from the Places to Grow Act and the continued push towards intensification. It actually mirrors a similar boom we saw in the 70s. In both cases, it was policy driven and the market responded.

  The other factor is a growing consumer preference for more walkable and urban neighborhoods. People are sick of long commutes and so we’re seeing a return to city centers and downtowns. This is happening across all demographic segments, though Millennials and Baby Boomers seem like particularly strong ones.

  Is that boom, and the consequent rush by developers to create new units for rapid sale, affecting the quality of design and accessibility in new condo developments in Toronto?

  When you have a hot market, you’re going to get lots of people rushing in and trying to make money. Whether it’s real estate, tech or some other industry, it’s to be expected. And I’m sure it impacted some projects negatively. But that market is gone in Toronto.

  And regardless of the pace of development, there will always be varying degrees of quality across builders. The unfortunate thing for consumers is that it’s not always easy to tell which is which.

  One of the things we’re trying to do (at TAS) is integrate consumer education more into our sales and marketing programs. Mechanical equipment, as one example, isn’t the most exciting thing to to talk about, but we want consumers to know what they’re buying into.

  Prices are rising (you could buy a house outside the city for the price of some of Toronto’s tiny bachelor units, if I’m not mistaken…) – So what is making condo ownership so desirable in spite of the high cost relative to space? 

  Again, it’s being driven a lot by lifestyle. People want walkable communities, they want to be close to amenities and they want to drive less. And they’re willing to give up space for that. 

  When considering and comparing the cost of a home, I think it’s important to consider some of the indirect costs, such as transportation costs, travel times, quality life and so on.

  Sure a home in the suburbs may be a lot cheaper, but what’s my total, all-in, cost? If you need to own 2 cars and you spend 2 hours commuting everyday, there’s a real cost to that. If you place a big value on your time (as I do), the cost equation isn’t so skewed all of a sudden.

  Are more people choosing to live in rental condos instead of buying, because of the inaccessible cost? If so – why are we still seeing so many new ‘rental condo units’ being built, rather than purpose-built apartment units?

  Condos are being built because, in most cases, it’s the highest-and-best use for the land. It’s the most profitable. And investors have been more than willing to step up and fill the rental needs of the market. But with the condo market now coming down from record levels, I wouldn’t be surprised if we start seeing more purpose-built apartments.

  Would you say that the majority of condo rentals on the market are owned by foreign investors who depend on building management to liaise with renters? If so, why are they choosing to buy units in Toronto?

  I have no idea. It’s even hard to tell how many units are just investor owned, let alone local versus foreign. Because there are tax implications if you don’t owner occupy a unit, buyers have an incentive not to disclose. Overall, I find it problematic that the marketplace is so opaque. I wish there was a way to bring perfect information.

  With respect to why they choose to buy in Toronto, there are a bunch of reasons. Real estate has been a phenomenal investment in Toronto over the past decade and that’s attracted a lot of investor attention. There are also segments that just want capital preservation in a safe and stable country. Even without great returns, that’s a valuable proposition for some foreigners. And of course, Toronto is a great city. Talent wants to live here and that’s important.

  Generally speaking, is there a certain LOCAL demographic (ie, boomers, post-boomers) that are investing in condos for the purposes of renting them out? What makes that investment so desirable?

  Again, there isn’t great data on this. 

  What I will add to the investor topic is that, despite the fact that investors often get a lot of flack, they do serve two important needs in the marketplace for both developers and consumers. The first one we’ve already talked about. Investors provide rental housing in Toronto at a time when few, new, purpose-built rental apartments are being constructed.

  The second one is that investors help to get projects under construction and built. I’ve heard one developer refer to them as providing a kind of short-term financing. Because consumers don’t always want to commit to a unit that might be built 4-5 years out, developers rely on investors to buy pre-sale units so that the project can get underway. Once construction is complete, these units then often get sold to end users who are now ready to commit and move in.

  2013.12.05

• Are condo rents really declining?

  Yesterday the Globe and Mail published an article titled, “Weakening rental picture latest condo market worry.” At first glance, this title seems worrisome. Particularly since Toronto’s condo rental market was supposed to be so robust, with vacancy rates hovering around historic lows.

  But as I read the article, I was reminded, once again, about how opaque the real estate marketplace is. To make this prediction, the research group quoted in the article mined craigslist postings. Granted, craigslist is probably the largest source for condo rental listings (even more so than MLS), but I don’t think it necessarily makes it a reliable source.

  Craigslist is a messy marketplace. You have expired listings; brokers posting listings in the owner section; brokers posting fake listings for the purpose of lead generation; and so on. It seems to me that there could be a huge margin of error if you tried to rely on this data. So I’m not so sure I would put a lot of weight on a supposed 1.6% rental rate decline.

  But what does worry me is how imperfect the real estate marketplace is. It’s incredibly hard to get good data and I think that this is bad for everybody involved in real estate. But network effects are a hard thing to overcome, which is why a messy and ugly marketplace such as craigslist can remain so dominant.

  2013.11.29

• Pier 27 and transparency in the real estate industry

  One of my favorite development projects going up in Toronto right now is the Pier 27 complex at the base of Yonge Street.

  What I love about it is that it’s trying something different. The two sky bridges that sit atop the two phases—currently under construction—are going to create a remarkable new focal point along the waterfront. It’s not just another condo.

  And as I watch the buildings go up, I’ve also been impressed by the materials used on the project. In particular the curtain wall (glazing) system used on the eastern most buildings. It’s a clear glass installation with white accent pieces. It’s beautiful. Here are a few photos.

  But as much as I love this project, it’s been slow moving. This project, like many others in the city, has been subject to a number of delays. They went to market in 2006-2007 and occupancy isn’t expected until next year—a good 7 years later.

  But more than the issue of time, my real concern is the lack of transparency. Why was it delayed? Were sales slow? Were there dewatering issues being on reclaimed land along the waterfront? Was the soil contaminated? As a consumer, it’s frustrating being in the dark.

  I do, however, acknowledge that this is a larger issue facing the real estate industry. We’re certainly not known for radical transparency. We’re a closed and insular industry. But over time I do believe that will change. It’s inevitable. And the best thing you can do today—as an organization or as an individual—is to embrace it.
  

  Full disclosure: I have a vested interest in this project and I’m currently having a fight with the developer over a small amendment I would like to make to the agreement of purchase and sale. They have been unwilling to cooperate.

  2013.11.27

• Panel: Investing in Condominiums

  I sat on a panel tonight for a discussion on investing in condominiums. It was organized by the Six Degrees Real Estate Mixer group.

  My overall position was that we’re now returning to a more balanced market. The days of massive appreciation and overnight riches are gone. But that doesn’t mean we’re going to see anywhere near the correction that the US housing market saw in 2008.

  What I do think it means is that everyone – from developers to small investors – needs to remain focused on fundamentals. Buy quality assets in great locations and make sure the rental income is there. Cash is king. That’s fundamentally what the real estate business is about.

  Overall, the data shows that developers are pulling back with respect to releasing new product to the market and that price appreciation has slowed, almost trading sideways. All of this is good for the market if you’re worried about a catastrophic crash.

  I think the experience in the US has made us all paranoid about our own housing market. But it could end up saving us from repeating their mistakes.

  2013.10.24

• Pay what you want

  In my pricing class this morning we looked at the strategy used by Radiohead with the release of its In Rainbows album. For those of you who aren’t fans, what they did was offer up the new album via their website on the basis that customers could pay whatever they want.

  At first blush this probably sounds ridiculous. But if you break it down, it turns out to be pure brilliance.

  First, it’s important to understand how pricing overall works in the music industry. In the olden days when people still bought CDs, an artist might make 15% of that sale price. So if you buy an album for $14.99, the artist’s royalties would be in and around the range of $2.25. The rest goes to the record label, their overhead and so on.

  With the advent of iTunes, artists still make around 15%. But now a typical album costs $9.99. This is because overhead costs are lower for an online-only store. Still, the artist now only makes $1.50 or so per album sale.

  In case the of Radiohead, their record label contract had expired and so they decided to self release In Rainbows. This obviously means that they were able to cut out a lot of overhead and other expenses. But would it not have been better to just sell the album for a fixed, but discounted, price?

  The thing is, when you give people the option of paying nothing, you maximize your potential distribution. This is good when you’re trying to sell concert tickets, merchandise and other revenue producing items in the future.

  But interestingly enough, when you give people the option you also maintain a business model. In this case, it turns out that, on average, people paid over $3 per album. This may sound irrational, but people do it for a number of reasons: because they’re big fans, because they want to support the artist, etc.

  Whatever the reason, Radiohead actually brought in more per album than if they had gone through a record label and/or sold through iTunes. In fact, In Rainbows netted the group over 8x more than their previous album Hail to the Thief – which was released through a record label. 

  This got me thinking.

  What other markets would be well served by a pricing model such as this? Could you make parking a pay what you want service? I know that Shakespeare in High Park uses the model. So does it only work for artistic markets where people feel an emotional connection? I certainly don’t think we could sell condos using this approach.

  2013.09.30

• How much space do you need?

  Urban Capital has just unveiled its new Smart House condo project here in Toronto. With units starting at 289 square feet, the project is all about ultra-compact and ultra-smart living.

  While micro-apartments are trending right now, they’re not a new idea. Architects have been fascinated by modular, adaptable and compact living for ages. Here’s an example of 100 square foot living capsules built in Tokyo in the 1970s.

  Tokyo, of course, is a unique example. There you have the entire population of Canada living in one city. But that doesn’t mean that Toronto isn’t feeling the pressures of urban intensification. Apartments are getting smaller.

  But the interesting thing about space is that it’s a relative thing. I personally live in 650 square feet and find it more than enough space. Though I also place a huge value on my time and try to minimize the amount of traveling I need to do.

  And this is really the trade off you make with space. As you move further away from a city (and housing costs drop), you’re effectively shifting those housing costs to transportation costs. Which includes real costs like gas and time, as well as more intangible costs like quality of life.

  However, I know many people that are willing to make that trade off for more space. But I wonder sometimes how much of that incremental space is necessity versus perceived necessity.

  How much space do you need?

  2013.09.29

• DUKE

  As many of you know, I recently made the move to a new real estate development firm here in the city called TAS. Well, actually, it was a return for me. I interned here one summer while I was in grad school at Penn. I was always a big fan of the company’s philosophy around city building and so it felt then, as it does now, as a really good fit for me.

  As a returning member of the TAS team, I’m excited to announce the launch of our latest condo project called DUKE. It’s located in the Junction (near Dundas & Keele), which is arguably one of the hottest up-and-coming neighbourhoods in Toronto. And, it’s a stone’s throw away from Playa Cabana Cantina, which just so happens to be my favourite Mexican place in the city (although sometimes I think it could be Grand Electric).

  In all seriousness though, and with as much bias aside as possible, I think it’s a fantastic project. I obviously wasn’t around for its formative years, but I’m thrilled to be a part of it now. If you’ve read any of my blog posts over at Dirt (thedirt.co), you’ll know that I’m a huge supporter of more midrise development in Toronto. It’s a European scale of buildings that I think we’re largely missing in our fantastic city.

  So if you’re in the Junction area, I would encourage you to pop into our sales office and say hello to the team. We’re located at 2800 Dundas Street West. The tile as you walk in is awesome (I can say this because I didn’t choose it) and I think you’ll find that the design of the place is very much of the Junction. Much of the materials, fixtures and labour that went into the sales office were sourced locally from the hood.

  If you do go check it out, let me know what you think by commenting below, tweeting me, or tweeting @tasdesignbuild.

  2013.09.17