Cadillac Fairview Betting Big on Downtown Montreal

Cadillac Fairview has invested $150 million buying land around the Montreal Bell Centre and plans on building a similar style development to Maple Leaf Square in Toronto (See here). Maple Leaf square, following in the footsteps of LA Live in LA and Victory Park in Dallas, is a hugely successful development that capitalizes on the brand of pro franchises in Toronto. This bodes well for the proposed Montreal development since there is no stronger brand there than the Habs.

Here's a quick Comparison to the Actual Maple Leaf Square and proposed development in Montreal:

Transit
Maple Leaf Square: Next to Union Station
Proposed Montreal: Lucien-L'Allier Station

Office Component
Maple Leaf Square: 10 Storey
Proposed Montreal: 27 Storey

Residential:
Maple Leaf Square: 872 units between two buildings (54 and 50 Storeys)
Proposed Montreal: 700 units between three buildings (Two 44 Storey buildings and one 25 Storey building)

Cost:
Maple Leaf Square: $500 million (2005)
Proposed Montreal: $400 Million

Prices at Maple Leaf Square started at about $450 psf with a 25% deposit structure. This was much higher than competition from nearby Montage at Cityplace. Montage was about $300 psf with a more flexible deposit structure. Expect this project to charge a premium over others as well.

Worth it?

While Montage topped out at about $500psf....Maple Leaf Square approached $700psf this year.

People saw good value living at Maple Leaf Square and units were sold quickly. I expect to see the same thing when Cadillac Fairview starts the sales in Montreal later this year.

Anecdotally, from the Real Estate agent community, i've been told that a huge component of the buyers at Maple Leaf square were overseas investors. Wonder if the same will hold true in Montreal.

REal Experts GTA Condo Report: August

Project Developer District #Units Sold $/PSF
Bisha Lifetime King/Spadina 334 100 $743
Chaz on Charles Edenshaw Yonge/Bloor 324 77 $663
Ventus 2 Metrogate Tridel Kennedy/401 314 56 $430

In July there were 861 sales (down 33.4% year over year)
Year to Date 2010 - 12,193 sales (up 78.4% from last year)
Unsold Inventory - 14,657 units (down 3.5% last year)

Observations

• Significant drop is sales from July 2010 and August 2009 (HST?)
• YTD sales still much higher than last year. This is still a fantastic year and ranks only behind 2007 in volume
  
• Index pricing up 9.4% this year and up 50% over the past five years
  
• Opening month is not going as well as previous years. Bisha at #1 sold 29% of its units.
  
• Tridel doing a great job working the broker channel selling Ventus II
  
• Big drop off from the top selling project to the 5th best selling project
• Developers have stepped up market efforts and doing a great job with being innovative
• Lots of broker anticipation for Tableau and Backstage this month should cause a sales uptick for October. After November, real estate agents and buyers historically start slowing down
  

Conclusions same from last month:

• 29+ launches set for fall, REal Experts expects to see sales fall and incentives to go up

Source: Real Net and the Lyon Report, pic from UrbanToronto (taken by udo)

Why retail at the base of condos in Toronto are not successful

Anyone who has a little knowledge on the Toronto condo market knows that our city loves towers with podiums. The thinking is that with the space at podium will make the street scape more lively (differing uses will keep the people traffic high throughout the day).

Developers have long complained to the city that this not the best use of land and this is why the store fronts are vacant. Retailers, in turn, say the developers need to start building quality product and the tenants will come.

What retailers know, and residential developers haven't fully understood yet, storefronts need a different approach. All too often developers build residential style condo store fronts. This leads to the following:

• inefficient loading and delivery capability
• hard to store garbage
• low signage height (need 16')
• residents not liking certain uses (bars and restaurants)
• too many columns within the space
• not environmentally friendly to keep costs down (i.e. LEED certification)
• low ceiling heights
• not enough parking
  

Fixing these problems adds considerably to construction costs for residential developers. Smart builders have to look at retail as an opportunity.


Take Lanterra joint venturing with Cadillac Fairview to add office, a hotel, restaurants, retail shopping and a grocery store to Maple Leaf Square. The differing demands caused significant construction overruns, which they have now learned to deal with for the future, but has made the development successful.


With the Peter Freed and Minto project coming up at Bathurst and Front starting with attracting quality retail in mind, its evident that developers are starting to catch on.

Look for Target to open urban stores in Toronto

At the recent International Council of Shopping Centres event in Toronto, Target announced its plans for its 200 store push into Canada.


Like many other cities, Torontonians loathe big box stores (see: Wal-Mart Leslieville). If Target's past history in the States are indications of what we are going to see in Canada, we will no doubt see more retail locations coming into downtown's of cities across Canada.

Target has has 35 multi-level stores in the US. Some of these stores have underground parking, and has one in Brooklyn that has no parking. I expect this to be a growing trend of condo developers partnering with Target and other retailers in the style of Queen and Portland.

With the success at Longo's at Maple Leaf Square, this will be a pretty cool for residents.

Development Charges for Pre-construction Condos and Townhomes

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Want to know why condo prices are going up to crazy levels?

• Land prices up: yes
• Lots of well financed developers: yes
• Lots of willing buyers: Yes
• Construction costs up: Yes
• City and Provinces taxes up: YES AND YES
  

Development charges are charged by regions and municipality to recoup costs for providing services for new developments (transit, water, sewage, gas and hydro). According to Building and Land Development Association, from 2001 to 2008 Development charges have increased 342%. During this time, most would argue that services haven't kept pace

As a case study, the Altus Group provided an insight into City of Toronto and provincial charges that go towards condo buyers bottom line:


Studio/1 Bed
Land Transfer Tax $1,200
Parkland dedication $4,000
City Development Charges $4,731
School Board charges $544
Realty taxes in construction $300
Section 37 $3,000
Building Permit $1,250
Misc Fees 500


HST on sales $15,000

Total $30,525 or 10% of the sales price



2 Bedroom or bigger

Land Transfer Tax $1,700
Parkland dedication $5,750
City Development Charges $7,613
School Board Charges $544
Realty taxes in construction $400
Section 37 $3,000
BuildingPermit $1,700
Misc Fees 500


HST on sales $22,000

Total $43,207 or 10% of the sales price


Townhouses

Land Transfer Tax $1,250
Parkland dedication $4,100
City Development Charges $9,340
School Board Charges $544
Realty taxes in construction $300
Section 37 $3,000
Building Permit $2,600
Misc Fees 500


HST on sales $43,000

Total $64,624 or 13% of the sales price.

With the new taxes, hidden as metropass requirements and green roof requirements, expect prices to increase further.

Save me from buying this crappy condo

Reading the latest tweet from a smart realtor Andrew LaFleur I got inspired to write about doing due dilligence on a resale condos.

We know it's important to review the status certificate and condo by-laws, but very few people take the time to review the condo board minutes. From my experience, reading the condo board minutes will give you valuable information on the building state of repair and how the condo board operates. This information will could save you a tremendous amount of money and stress.

So what do you look for when reviewing the condo board minutes?

Thomas Beyer, a specialist in doing condo conversions in Alberta, gives great advice:



Look for:

1. Discussion of major items in minutes of the condo board meetings, i.e. water leaks, new roof, bed bugs, plumbing issues, structural issues, windows, rotten balconies etc.
   
2. Potential cash-calls/special assessments and why
   
3. Reserve fund health vs. age of building (get help with an experienced property manager or lawyer on this)
4. If a newer building: discussion of significant maintenance fee increases
5. If a newer building: any disputes with developer or pending Tarion issues
   
6. Any special meetings outside the usually annual AGM for major decisions
   
7. Any budgeted / future major expenditures and anticipation of funding these same expenditures through reserve fund or special assessment (i.e. you think it is a good deal .. but in 2 months you're on the hook for a $35,000 special assessment to bring reserve fund current and fix all windows and a new roof )

Keep your eyes open

REal Experts Condo Market Analysis

Picture from Urban Toronto


Project Developer District #Units Sold $/PSF
Five Condos Graywood & Mod Downtown Core 493 320 $603
Tango Concord Adex Sheppard Corridor 384 218 $458
One Valhalla Edilcan Group Etobicoke 216 163 $403
King Edward Dundee & Skyline Downtown Core 145 143 $729
Four Seasons Catalia Richmond Hill 201 55 $402

In June there were 1,764 sales (down 0.9% from last year)
Year to Date 2010 - 9,934 sales (up 142% from last year)
Unsold Inventory - 14,498 units (down 15.6% last year)

Observations

• Commonality -Top 5 developers are active in courting the brokerage community
• Lots of sites competing for buyers.
• Developers continuing to buy sites at top dollar (e.g. Freed Developments purchases 2.4 acre site at 578 & 580 Front Street West (on the corner of Bathurst) for $42 million!)
• Toronto is now largest Hi-Rise Market in North America
• Prices are up from last year (2010 Avg $486 psf vs 2009 $430/psf - this stat is an average and really means nothing - have to see what's going on in your local market)
• Banks still tight on construction financing, most projects still require 20% down for the majority of their purchases
  

Conclusions

• 29+ launches set for fall, REal Experts expects to see sales fall and incentives to go up
  

Move to suburbs can’t offset condo sales slump

Recent article in the Star, Tony Wong states:

the Greater Golden Horseshoe Growth Plan, which touts higher densification for the 905 region, combined with affordability issues and a greater acceptance of highrise living, have made condos desirable for many suburban buyers.

Is this actually occurring?

Of the cities mentioned in the article. Here are the year to date sales (YTD)

Markham 95 sales
Brampton 85 sales
Pickering - To small to be in its own category - Considered part of other areas which total 233 sales

Mississauga is not really that dense with 323 sales this year (explains why Christopher Hume sees the city as a lost opportunity)

So where is densification occurring

Toronto 3,483 sales or 53% of the market
North York 1,119 sales or 17% of the market
Etobicoke 622 sales or 10% of the market

Thanks to Blackjet Inc the rendering of the Toronto Skyline of the future

Adam Vaughan VS Brad Lamb

I receive this picture of the site Brad Lamb and Peter Clewes were looking to develop.


The picture came to me by way of a reader with the following note:

Rejected because of the height and the neighbours? What`s that in the
background?

I guess the bribe wasn't big enough.

Recalibration of the Condo Market

Networking with a few builders and financiers this week some interesting stories came out.


1. Land is expensive and scarce. Most developers are not willing to speculate that if they buy the land at a high price they will generate enough revenue with a high price unit.

2. It's still tough to get construction financing and land financing on projects.

3. Most of the smaller and inexperience builders are gone. Tougher financing requirements and the huge bureaucracy at Toronto City Hall are huge barriers to entry for new developers.


As a result the market is re-calibrating after the recession. Starts and New openings are picking up, but its going to have a different feel.

Number One Bloor

Baker is back at for a second time marketing the site of the famous one bloor fiasco. This time Great Gulf will be behind it with a slightly new name and really toned down: Number One Bloor

How is the site remembered?

-Agents will remember the $100 brochure package the developer was giving out and the long cold nights
- Media will remember the great story of people lining up for days with round the clock roll calls
-U of T Students will remember they were paid $2000 to line up - still no word on how much Cerebal Palsy John and Johnny five were paid.
- Investors will remember people blasting their emails trying to flip the condo for $10,000 more than the purchase price within the 10 day cooling off period

Check out the video From the Toronto Star here

Will Baker recover from pissing off the Toronto Asian Agents to sell out Number One Bloor as fast as they did X2 (read about the fiasco here). Probably

Real Estate Development in Toronto

Happy New Year to all, two weeks ago I had a chat with Pat Berne of the Pemberton Group.

I found it extremely insightful to see how financing works from a developers perspective. In Canada, a developer receives construction financing to build a project based evaluating the following criteria:

1. Equity - How much has the developer invested into the land where construction is to take place
2. Track Record - Has the developer displayed a history of completing projects on time and on budget
3. Valuations - What they plan on selling the units for
4. Buyers - How much deposit have they invested, the structure of the deposit, credit situation, who the are (i.e. close relatives, family and friends vs actual buyers)
   

What has separated Pemberton from other hi-rise developers is their specialization. They understand their craft, and they don't just hire a general contractor to build and have free reign on managing the construction budget or don't allow the marketing side have the final say on how the condo should be built.

There are rumors in the city where fantastic marketers having trouble completing projects because of huge cost over runs and changes, and examples where great construction companies mess up their marketing and have troubles getting sales off the ground.

According to Berne, "you have to understand the impact of changes, and what they will have on the entire project." That is why on a daily basis, Berne and his people are on top of all costs, changes to design, construction, and marketing of a project.

The challenges facing Berne are two fold: Affordability and Acquisitions

Back in 1989, condo prices were about $400 psf in 1989 real money, they quickly fell to $180 psf because of affordability. While Berne doesn't see a crash up coming because this recession is a bank/finance recession rather than a job loss recession...he does see problems for land owners trying to sell to developers for unrealistic prices.

Land owners been approaching developers to buy their land as if it was already zoned to build a hi-rise, not realizing the tremendous zoning risk to developers.

"We've had owners calling us and saying that you should buy our property at our price because the property down the road had 20x coverage...which was completely false, " says Berne. "We won't buy anything that doesn't make sense to build today, we won't spec that appreciation will still occur to bail us out, otherwise it would make our (homes) less affordable"

While not expecting appreciation to bail us out, Berne constantly monitors immigration, incomes, unemployment, interest rates when planning their next steps, and his research is showing that we are going through an period of price stability.

What's his advice to investors? keep on top of the market and know it inside in out to find value (continue to shop around), understand how much you will spend on financing now and in the future..and most of all, keep writing those offers.

KPMG report on HST's impact to Real Estate

For more information on HST's impact on real estate...check out KPMG's report here

Proponents argue that HST is going to beneficial for Ontario as a large portion of our economy is based on construction and manufacturing (industries that require a lot of start up capital rather than labour capital).

Some benefits include:

• More construction jobs. A recent C.D. Howe Institute report estimates there was an increase in construction machinery and equipment investment by 12.1 per cent in the Atlantic Provinces after a HST was implemented there. As the purchasing power of a business increased, thanks to the benefits of input tax credits, so did the investment.

• Infrastructure construction stimulus. The Ontario Road Builders’ Association (ORBA) have been longtime advocates for sales tax harmonization and say the new HST will help with competitiveness and clarity. With a simpler tax system it will eliminate a lot of bureaucracy and paperwork. Construction is a paper-heavy industry, but having a streamlined tax system will alleviate a lot of that burden.”

For finance, insurance and real estate (FIRE), which are huge component of the Toronto economy, this is not so much of a good thing, especially for real estate investors like us (will it drive jobs away from Toronto?). It will be inflationary and add significant costs to our business. Services such as home staging, legal fees, accounting, maintenance, real estate commissions, new home prices will all go up with no benefit to the parties involved.

Interesting Observation on the Toronto Condo Market after the Recession

After going through the research Ben Myers from Urbanation gave us for the show I noticed something interesting to follow up on a previous blog post. Beginning of this year was real estate Armageddon.

Sales of new condos went down to unforeseen levels. Developers were on average selling less than 5 condos per project for the first quarter...coming from a time when the developers were used to 25+ units sold per project over a quarter.

How would you react if your sales fell to 1/5th of the level it once was? I'd be sweating bullets and slashing prices.

But an interesting thing happened...prices didn't fall (resale went down slightly showing that individual owners panicked more than developers).

Simple economics here....you lower supply to keep prices the same (is life ever this simple?)

Toronto Condo Bubble Watch from Urbanation and Realnet

Interesting point from George Carras from Realnet, when the recession started last year Toronto was at record levels at inventory. Far outpacing demand.



Toronto builders adjusted strongly and brought inventories down significantly to match demand (George from Realnet feels that we are currently "under supplied" hence bidding wars).

Why did this happen? According to Ben Myers from Urbanation, the Toronto condo market is controlled by a number of well-healed developers (75% of the units in Toronto are built by "large and wealthy" developers).


As a result, the condos built in Toronto are built by financially stronger players than in other cities = no desperation to sell quickly = better able to manage supply = insurance against bubbles.

Condo glut an optical illusion?

Great show last week with George Carras from Realnet



He had the below graph that illustrated an interesting point about the Toronto housing market



As can be seen the GTA made a huge transition in 2002-2003 from low-rise (houses) to hi-rises (condo/lofts). This is due to the introduction of the green belt and the places to grow act in 2002 (encouraging intensification).

So when we see all those cranes floating around thinking we are in an over supply situation, we are actually building less units overall YTD...and we may be in a slightly under supply situation (that's why we are seeing bidding wars on downtown condos right now).


Moral: Government regulations have unintended consequences. smart investors see through the hysteria and profit.