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Lockers More Important Than Ever

Over the past 2 years in particular, the size of condos in Toronto have been getting progessively smaller. The shrinking size of condos has allowed developers to continue to keep the actual prices of the units at a reasonable level, even while the average price per square foot has basically doubled in the last 7-8 years.

We’ve seen 270 sq ft studios, 395 sq ft 1 bedrooms , 580 sq ft 2 bedrooms, and 859 sq ft 3 bedrooms. All of these units would have been considered asinine and unsaleable as recently as 2006, but now they are in just about every building south of Dundas.

One big question many buyers are asking is: where am I supposed to put all my stuff? Storage lockers are more important than ever for storage, however, I am finding lately that they are becoming harder and harder to get. It used to be that developers would finalize parking spaces and locker spaces before they ever went to market, and buyers would be able to buy both at the time they signed their agreement for their unit. Now, locker spaces and parking garage areas are often still in the ‘design stage’ when projects go to market and developers don’t have exact numbers of how many they will be able to sell, so they don’t sell them in the initial launch stages. When they do become available to buy, there is often a shortage and only certain units can actually buy lockers.

Why is this happening? Two key reasons in my opinion:

1. Developers are usually in a rush to get their projects to market and investors don’t usually care about parking or lockers
2. Developers seem to be sacrificing locker space and parking space in order to maximize the number of units they can put in a building (maximize profits) as well as minimize the construction of underground levels (minimize costs)

I’m all for minimalistic living, but 400 sq ft and no locker is pushing it! I’m concerned some of these buildings will not be all the ‘liveable’ when completed. One building that launched recently is said to only have 10 lockers for around 200 units! Quick investment idea: buy a condo, gut it and split it up into storage lockers and rent them out to people in the buildings where lockers are at a premium!

Questions or comments? Please contact me.

What Makes a Good Location Good?

Location is the most important factor when considering any real estate investment. You can change many things about a property, but you can’t change its location, therefore it’s vitally important for any condo buyer to understand exactly what makes a good location good. Why do some condos appreciate at higher rates and command higher resale prices compared to others that are often located just steps away?

Just being downtown is not enough with today’s buyers. Buyers want to experience the best of urban living.  Today’s urbanites are more sophisticated than ever. They know the difference one block in the wrong direction can make on quality of life and resale-ability down the road. They know the impact of having a Starbucks in your building can make versus having a Coffee Time.

The best locations are those that combine two key factors:

1) Highly visible. Being in a highly visible location is critical to attracting people, businesses, services, and even government dollars to fund things like transit and infrastructure. You need to be seen from the street by pedestrians, people in their cars and on transit. You need to be in a spot that is well-known and familiar with the average person in Toronto. This is why condos located immediately on the crossroads of two major streets are always tremendously popular with buyers (One Bloor at Bloor and Yonge, The Hudson at King and Spadina, L Tower at Front and Yonge, etc.). This is also why condos located busy pedestrian and transit-friendly streets like King or Queen tend to out perform those located on one-way, transit-less streets like Richmond or Adelaide.

2) Highly visited. Just because a condo is located in a highly visible location, does not mean it will be a highly visited location. A great example of this is Cityplace. Everyone knows where Cityplace is, and the towers dominate the skyline when you are coming in from the west on the Gardiner, however, no one except the people who live in Cityplace ever go to Cityplace. This is one reason why prices in this area continue to lag significantly behind that of other nearby neighbourhoods.

Recently a fairly high profile project launched in the heart of the downtown to much fanfare. Many Realtors were pushing this project as a great investment to their clients, however, I quietly told my clients to ‘pass’ on this project even though the building was located a few minutes walk from the multiple subway stations. Why? It was essentially located on a side street of a side street. Most people including Realtors had to Google the address and still didn’t know where it was! The location of this building is neither highly visible or highly visited, thus I advised my clients to hold out for other projects.

Questions or comments? Thinking about buying a condo this fall and want to be sure you pick one with a great location? Contact me.

Newer is Better, Right?

With several dozen new condos expected to launch over the next 60-90 days in Toronto, the question for investors is quickly becoming: Which one(s) do I invest in? If you believe the prevailing message of the condo marketing machine, newer is always better. That is, getting into a condo at the earliest stage is always better than buying at a condo whose launch period has passed. I have to disagree.

The condo industry is driven by hype, and when something is shiny and new, and relatively unknown, hype is never in short supply. And of course, once something is a known commodity and the ‘newness’ of it starts to fade. Developers know this and many have taken to the practice of multiple launches in the form of VIP launches, preview openings, grand openings, etc. However, just because a project is no longer the latest and greatest, doesn’t mean investors should write it off as an investment opportunity.

This week this point was illustrated perfectly when I observed a new condo being launched to much fanfare and excitement while another existing project quietly released some new units. In my analysis, the new project is not worth investing in while the old one provided an excellent buying opportunity.   In fact, two of the best buying opportunities in my opinion so far in 2011 for downtown condos have been from “old” projects who have offered a “new” promotion. One was at 12 Degrees, and the other was just this past week at DNA3 when they released 2 additional floors of suites.

So what is the best condo to invest in? The answer is the one that offers the best value compared to everything else on the market. I measure value by comparing the location, price, and features of one project vs. the next. Sometimes the newest condos offer the best value, because prices are often lowest at initial launch, but often times these new launches only serve to further highlight that existing projects offer better prospects for return on investment.

Questions or comments? Ready to buy a condo this fall? Contact me.

Observations from Paris

I just got back from a couple weeks in Europe and got to spend some time in one of my favourite cities: Paris. When travelling I always like to try to learn something of the state of the local real estate market. As you can imagine, Paris is a very expensive city, and has ‘world-class’ written all over it (that illusive descriptor we are always striving for here in Toronto).

The photo for this post is the view from the terrace of an apartment I had the pleasure to visit while in Paris. The apartment had completely unobstructed south, west and north views from an expansive terrace. The buildings in the photo comprise the “La Défense” neighbourhood (the modern business district of Paris). The apartment was approximately 1300 sq ft with a terrace of about 300 sq ft. It was in an older building from around 1920 in a prestigious but not downtown neighbourhood. It was completely rebuilt by an architect-designer and was recently sold for about €1.8M (CAD$2.2M, works out to about $1600 per square foot).

A few things I learned about the market in general in Paris:

• Commissions are typically 5% selling property in Paris using a real estate agent
• Other transactional costs when buying a property in Paris can be up to 10% of the property’s value! (And I thought the Toronto land transfer tax was a burden)
• Property taxes are quite similar to Toronto. example: One apartment I visited was worth about €1M
  and the yearly property taxes were about €6000
• A sort of ‘community tax’ (Taxe d’habitation) must be paid for by whoever lives in the apartment – either the owner or the tenant (if leased out). Hard to figure out how much this will be, but something like 10-15% of market rental rate.

On another note, cheese, wine, and bread are all incredibly delicious and incredibly cheap in Paris. On balance, Toronto is still an amazing city to live in and invest in real estate. Glad to be home and excited for what promises to be another busy fall market! If you have any more insights on the real estate market in Paris that you’d like to share, leave a comment below or feel free to contact me.

Will the Condo Market Crash?

It’s that time of year again, the time of year after a very busy spring market (I would argue a typical spring market) that was full of bidding wars, new price records being set, sellers making enormous profits, buyers extending themselves to the max, and the pundits were left scratching their heads saying: is this a bubble? Is the condo market about to crash? Cue the headlines proclaiming that prices will soon fall. It seems every year around mid-July when all the final stats are in for the busiest time of year for real estate (April, May, June), the mass media looks to tell us that this is not sustainable and that it is all about to fall apart.

The Globe and Mail and the Toronto Star are competing for your eyeballs right now running the same story: some of the good folks at TD bank are claiming that sometime in the next 2 years the market will slow down and prices will fall. Wow, what a bold prediction (sarcasm)!

Here are my problems with this prediction (and others like it):

1. They are extremely vague. Interest rates will go up and incomes will go down, therefore prices in Toronto and Vancouver will fall 10%. Really? How will this happen? Why will this happen? Show me some statistics in the market right now that leads you to believe this is going to happen. These articles are always very short on specifics.
2. They are too broad in scope. Economists and bankers are trained to think of the big picture. We live in a global village, however, real estate is still local. If you want to know what will happen to the downtown Toronto condo market – talk to the experts who live and breathe the market, not some economist who has never set foot inside a Toronto condo.
3. They are too long term. Trying to predict the real estate market beyond about 6 months is a fool’s game. Look at any of the predictions made 2 years ago for where the market would be today and you’ll see what I mean.
4. They are media driven. Bad news sells. Good news doesn’t. This is a simple concept we all understand. If a pundit comes out and says that everything seems fine and will continue along as it has been, that pundit will soon be out of work!

I only see two things causing a change in the Toronto condo market in the short term:

1. RAPID rise in interest rates. If interest rates rise, this won’t likely impact the market – because they will rise slowly and the market will adjust accordingly. If they rise quickly and significantly, then we will see a big impact. (Consult further: Toronto condo market in 1989.)
2. MAJOR economic catastrophe. If Greece defaults, or the U.S. doesn’t get their act together and they are downgraded, the world will feel the pain and the trickle down effect will most likely and eventually hurt the Toronto condo market.

Thoughts or questions? I always like to hear from my readers. Leave a comment or contact me directly.

The Manhattan Theory

Is Toronto on its way to becoming just like Manhattan? This question has been asked for years now, and the comparisons can be made that Toronto is a sort of ‘mini New York’ – a major financial and cultural centre, the heart of a mega-region, and home to some really expensive real estate. But are we moving away from being an affordable city for the middle class to a city built primarily for the rich? Will $1000 per square foot to purchase a mid-grade condo and $2500/month to rent a studio soon become the norm here?

I’ve had some interesting conversations with some of my clients with international experience lately, and here are some of the sentiments and theories that they are espousing:

• Like Manhattan, prices and demand are rising to the point where Toronto could perhaps become a city where much of the real estate is owned not by individuals, but by corporations
• Could we reach an average price level where home ownership becomes a possibility only for the wealthy? – i.e. the first time buyers market will cease to exist (can’t make these condos much smaller than they already are!)
• Will first time buyers will be forced to look outside the downtown, (as is the case for many in Manhattan), live in the inner suburbs for years before saving enough and building enough equity to move back into the city?
• What about investors? It is taking higher and higher down payments to get condos to cash flow – will this continue, or as prices rise, will we finally see rents rise as more and more would-be buyers are priced out of the market and forced to rent?

Sorry for the random collection of thoughts, but these are some of the talking points I’ve been having lately with some of my clients. I’d love to hear what my readers think about this subject and where people see prices, rents, and the first time buyers market going in the next 5-10 years. Leave a comment or contact me!

Image from photos4travel.com

Sometimes The Best Deals are NOT Advertised

New condos are launching at a rate of about one per week right now in the downtown core. However, don’t be mistaken in thinking this means solid investment opportunities are coming at a rate of one per week! In fact, there is usually a negative correlation between the number of new condo launches and the number of quality investment opportunities available. The opportunities are actually quite rare right now in my opinion. There are only a handful of projects that I am comfortable in recommending to my buyers and investors.

As with any other product or service, the best deals in real estate are often unadvertised. If you see a billboard or glossy ad in a magazine proclaiming the “suite of the month” or “special offers on now”, chances are there is no deal to be had here. You won’t find the best deals on a billboard or in a glossy magazine or taking up a page in the Globe and Mail. As with any other product or service of any value, the best deals in real estate are often the unadvertised ones.

This past weekend, some of my investor clients were able to take advantage of such an opportunity at a A1 condo project downtown. I received nothing more than a good old fashioned phone call from one of the developer’s sales reps informing me that if the developer sold a certain number of units in a certain period of time they would get a better rate on their construction loan. The developer was motivated and thus, offered significant CASH discounts off the list prices of their remaining inventory. Not a dime was spent on marketing or advertising this deal. The only people who heard about it were a handful of Realtors like myself who were called directly. My clients are very happy and the deal is now done. Prices are back up to the list prices.

My reputation and track record as one of the top Realtors downtown for pre-construction means my clients get access to these exclusive, unadvertised deals from time to time. To get on my list for these types of deals in the future, simply contact me and I will be happy to include you on future opportunities.

Quality Investments in Pre-Con Becoming an Endangered Species

Hype-driven marketing seems to be at an all time high in the pre-construction condo market. I am finding it harder and harder to find quality investment opportunities to recommend to my clients. This at a time when a new condo project is launching almost every week. Prices are soaring. Suite sizes are shrinking. Every agent and their mom is calling themselves a “VIP” agent. Something has got to give.

I am getting more and more calls from buyers who have felt pressured into signing contracts to buy pre-construction condos without really thinking through what they are doing. So far this week I talked to 2 people who were in their 10-day rescission period and they flat out told me they don’t trust their agent who they used to buy the condo and were unsure if it was a good investment. They attended one of these hype-driven “VIP” sales events (VIP has really become a meaningless term), everyone there told them it was a great investment and they would make a lot of money, and so they signed on the dotted line. [Side note: Often I find that the agents used in these scenarios know nothing about the pre-construction condo market (or worse, the condo market in general), and there is often a family connection - the agent is the buyer's uncle, friend's uncle, god parent etc. Hire a professional who you trust!]

I am not thrilled with the tactics some developers are using to sell their projects, but more importantly, it’s the pricing that is automatically precluding me from recommending several projects to my investor client base. Buying at $600+PSF when comparable resales are selling at less than $500PSF just doesn’t make sense. To be clear, I am not in the camp that believes it is only a good investment if pre-con prices are LOWER than equivalent resale – I just think the gap needs to be about $50-$75PSF in most cases to make sense from an investment perspective.

Questions or comments? Wondering what projects I am recommending to my clients for investment and which ones I am not? Please contact me.

The Importance of Infrastructure

If you are planning on investing in a condo in 2011, there are many obvious factors to consider: builder track record and reputation, location, price per square foot, building and suite features, layout/floor plan etc. There is one factor that I always consider when buying real estate and that is neighbourhood infrastructure (specifically transportation infrastructure).

This includes roads, transit lines (subways, bus routes, streetcars), access to highways, pedestrian walkways, bike lanes/routes, water access (if near the lake), and any future development plans or potential plans for vacant or underused land. Without solid infrastructure in place, a neighbourhood can stagnate and become segregated from the rest of the city, making it less livable and result in slower appreciation rates compared to other better serviced areas.

Liberty Village is a good case study. Liberty Village is a master-planned community that I believe is in danger of becoming a victim of its own success. There is basically only one way in and one way out of Liberty Village, and that is via Liberty Street. Whether you are walking, driving, biking, or taking transit, you are probably on Liberty Street coming and going from this area. The reason for this is simple: the pie-shaped area is bounded on 2 sides by two rail lines and the Gardiner Expressway. Gridlock and traffic congestion is becoming a real issue in Liberty Village (ask anyone who lives there).

There are now plans underway to add a new road to Liberty Village (when was the last time a new road was built in Toronto?!), as well as a pedestrian/cycling tunnel or bridge across the train tracks. This will be something to watch in the years to come and if I was an investor in the neighbourhood, I would be calling the city councillor to push these projects through.

One of the reasons why I am a big proponent of the Regent Park revitalization is that the neighbourhood infrastructure is so strong already. The neighbourhood has been isolated from the rest of downtown for 50 years not by physical barriers, but by social ones. Think about it: streetcar lines on Dundas, Gerrard and Parliament will connect residents to just about anywhere in the city, east or west. Sackville, Sumach, and River streets will all be through streets that will connect the neighbourhood directly to Cabbagetown, Corktown, The West Don Lands, and the Distillery District. Most people don’t realize just how connected Regent Park actually is to a plethora of excellent Toronto ‘hoods, and soon enough will be an excellent ‘hood in itself!

So far the value of real estate in Liberty Village has not been hurt at all by the massive influx of condos (and people, and cars etc), but that is not to say that as thousands more move into this area the ensuing gridlock will not start to affect real estate values in the future.

Questions or comments? Please contact me.

One Came by Fax

The spring market doesn’t officially start until, well, spring. But anyone who is shopping for a condo (or a house) in Toronto knows that the market is H-O-T right now, and multiple offers are not the exception, but the norm. Over the years of working with buyers and sellers in multiple offer situations, you learn a few tricks. If you are a buyer in a multiple offer situation, there are four sweet words you should love to hear:

“One came by fax”

Sending an offer by fax in a multiple offer situation is the real estate equivalent of ‘mailing it in’. The agent is essentially saying, my clients’ offer is not strong enough to stand a chance of actually being the winning offer, so I’m not going to waste my time by actually showing up for the offer presentation.

At the precise time of bidding, make sure you find out a) how many offers there are on the property and, b) how many are being presented in person vs. by fax/email. If you hear some or all of your competing buyers are submitting their offers by fax, consider your own offer carefully before submitting! You don’t want to be the offer that makes the seller’s say “One offer came in and blew us all away!” (Side note: Sellers-NEVER say this in front of a buyer or buyer’s agent). For example, if there are 3 offers, and you are the only one who shows up in person to present your offer, there is a good chance the other two offers are going to be weak ones, so consider your offer price accordingly. An in-person buyer is a much more motivated and serious buyer than one who is not present (as a general rule).

When I hear an offer was faxed in, I will automatically discount that offer when advising my buyer-clients on an appropriate ‘winning’ offer price. This is more relevant when in an offer situation with 2-4 offers, but it becomes less relevant when there are 5+ offers.

Questions or comments? Please contact me.