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Warning Signs in the Ultra-Luxury Market

There are some signs of cracks forming in the foundation of the ultra-luxury condo market in Toronto.

Two months ago I wrote a blog post about the Absorption Rates at some downtown condos, and how units at brand new, high-end buildings are not selling. At that time, there was a 30 month supply of inventory on the MLS for the Ritz Carlton. Today, the situation at the Ritz is actually slightly worse. There have been 2 sales in the last 60 days and there are 33 units available for sale meaning there is 33-months’ worth of inventory.

This statistic alone would not be comforting for anyone watching the luxury condo market closely, however, it gets worse. There have been 5 sales at the Ritz Carlton registered on the MLS since the building registered in the summer. The first 3 sales were in the summer and they averaged around $914 per square foot. Then a unit sold in September for $865PSF. Now just last week a unit sold for…wait for it…$728PSF! An incredible number when you consider the developer was marketing units there at $1200+PSF just 1 year ago. Also incredible when you consider ordinary buildings that do not have a 5-star International Hotel chain in them are selling for close to the same price per square foot.

Why is this happening? A few theories I have heard:

1. Toronto is fundamentally not a high-rise city, at least not yet. Those with $5M+ in assets still prefer good old Rosedale or Forest Hill over downtown. Eventually this may change, but right now it looks like it has not.
2. There is just not enough money in Toronto. All these suites at the Big-4 (Ritz, Trump, Shangri-La, Four Seasons) were sold to speculators thinking they could flip them to local buyers after completion, but there just aren’t enough buyers to go around for all 4 of these projects finishing around the same time (2o11-2012).
3. Toronto is not New York or Hong Kong. Brands like Ritz, Trump, Shangri-La have no cachet here (what about the made-in-Canada Four Seasons brand?). Hat tip to @BrianPersaud for this point.

Implications:

1. If you bought a condo at $1000+ per square foot and it is not located in Yorkville, you should be worried. If you bought a condo at $1500+ per square foot I honestly think you are in serious trouble.
2. It’s still better to buy 3 condos at $300K each for investment than it is to buy 1 at $1M.
3. If you are trying to sell a unit in one of the Big-4 this year or next year, be patient! You may be better off renting out your property for a few years until the dust settles and all 4 of the Big-4 are completed and registered. This will also allow time for the buildings to distinguish themselves from the average Toronto condo in the minds of condo buyers.
4. If you are a buyer looking in the luxury market, especially an international buyer, you this is a great time. You can pick up one of the nicest properties in Toronto for only slightly more per square foot than the average middle of the road stuff! Time to go shopping! (contact me

Questions or comments? What do you think is going on in the luxury market in Toronto? Please contact me or leave your thoughts in the comments section below.

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Absorption Rates

I wanted to dig a little deeper for today’s blog post and take a look at absorption rates in various condos. Looking at Festival Tower got me thinking about this subject. Festival Tower has a plethora of units available for sale, but hardly anything is actually selling. The building is stunning. The amenities are amazing, and the film festival that just finished put this tower in the international spotlight for a full 2 weeks. The building has been fully registered and finished for a few months now. I am at a loss as to why units are not moving here. There was so much hype about this building for the last 5 years, and now that it is finally finished, no one is buying?

Let’s compare Festival Tower with other buildings downtown. I took a random sample of various buildings, all completed in the last 12 months. I tried to pick a few buildings to somewhat represent the whole spectrum of the downtown market from the lowest end to the highest end. Take a look at what I found:

Only 3 units have sold in the last 60 days at Festival Tower, and there are currently 42 units available for sale. At this rate, it would take 28 months to sell all available units! Similar story at The Ritz Carlton, where only 2 units have sold in the last 60 days and there are 30 units on the market (actually more since the developer has a few unsold that are not on MLS).

Compare this to a building like Parade in Cityplace, a known area for heavily investor-owned buildings. While there are a lot of units on the market in the building (36 currently), they are moving fast (18 sold in last 60 days)!

Obviously price point has a lot to do with this. There are far more buyers looking for condos in the $300K range than the $800K range. However, I am really starting to rethink the high-end of the market and wondering if there really is a market in this town for condos in the $800 per square foot and above price point.

You could possibly point to a building like Crystal Blu where the absorption rate is quite good and say there is a market but only in one area: Yorkville. One theory I have is people with money to burn on a condo will live in Yorkville, but anywhere else it’s not worth the premium to get a high-end unit.

The point of this blog post is really not to say I have an answer to this question about where are all the high-end buyers, but rather I would like to start a conversation with my readers and clients on the matter. So let me know your thoughts. Contact me or leave a comment.

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Ritz-Carlton One Day Sale

The Ritz Carlton is having a One Day Sale to celebrate their grand opening and imminent completion of the building. On Saturday April 30, buyers are invited to purchase one of the last remaining suites at specially discounted prices. Contact me for more details.

The Residences of The Ritz-Carlton is almost complete. The hotel opened up a few weeks ago and already it is becoming a major hot spot. The multiple restaurants and bars at the hotel are receiving rave reviews and you’ll have to book a week or two in advance if you want to dine at TOCA by Tom Brodie.

On a tour of the building recently, I encountered a resident who had only just moved into his suite about 3 days before. His description of what it is like living at The Ritz Carlton I think was perfect. He said, “It’s like living in a fantasy land”. And that’s exactly what life is like when you are living in not just one of the top condos in Toronto, in one of the best locations in Toronto, but also living atop a global icon of a five-star hotel.

There are 19 suites still available, all with occupancies slated for this year. Sizes range from just under 1400 sq ft up to the sub-penthouse, half-floor Valencia model at just over 6000 sq ft. Prices start at $1.5M-$9.65M. Cash discounts for this one day only sale amount to $155K-$300K off the list prices and prices will be increased starting May 2.

For more details including floor plans and pricing, please contact me.

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Is Toronto Special?

I love my overseas clients. They have such a different perspective on the Toronto condo market than we locals do. In general, they are far more optimistic and excited about the future potential of our city than we ourselves often are. They understand that the Toronto condo market is special.

I was meeting a new client yesterday at the Ritz-Carlton, and no surprise we got to talking about the market. I was somewhat surprised when this banker from Hong Kong said that he he believes Toronto is still severely undervalued. The Ritz Carlton  in Toronto is selling now at about $1100 per square foot. An equivalent property in Hong Kong would cost approximately $4000 per square foot he informed me. He remembered telling the sales people when he bought his unit for roughly $650PSF 5 years ago that they were being way too conservative with their pricing (they should have charged much more). He went on to say that luxury properties like this in Hong Kong will rent out between $10-$15 per square foot per month, versus Toronto where $3 per square foot is considered a high water mark presently.

Another thing that makes Toronto so special compared with other major world cities is that we still have a first time buyers market.  As a first time buyer on an average university graduate-type salary, you can actually buy a decent piece of real estate in Toronto and walk to King and Bay (our country’s financial heart) in 10-15 minutes. Where else in the world can you do this? In other cities like NYC or London, you buy in the outer burbs, have kids, save,  save, save, and then maybe when your kids are grown and moved out you might have enough saved up to buy your dream apartment in the city. In Toronto you can still do it when you’re 25. Amazing and rest assured, this will not be the case in Toronto forever.

I am still very bullish on Toronto. The next 10 years may have their ups and downs, but the trajectory of Toronto on the global scene to me is clear and this is a fantastic place to invest your money. I believe Toronto will continue to see tremendous growth over the long term.

If you are a non-resident of Canada and you would like to discuss investment opportunities in Toronto, please contact me.

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First Impressions: Residences of the Ritz Carlton

Today I had opportunity to perform the PDI (pre-delivery inspection) on behalf of an overseas client who purchased at The Residences of The Ritz Carlton. The building is the first of what I call the “Big-4″ to be undergoing occupancy in the downtown core. The Big-4 are the 4 condo/hotels backed by major international luxury brands: Ritz Carlton, Shangri-La, Trump, and the Four Seasons.

These projects are in a class all their own with all suites in the $1000+ per square foot range. When the Ritz Carlton first launched back in 2005, $1000 PSF was a sort of Manhattan-esque fantasy and most never thought we would get to this point so fast. The truth is, suites at the Ritz are now selling in the $1100+ PSF range, as nearby buildings without an internationally renowned luxury brand behind them are selling for as much as $900PSF.

Impressions on the building itself: from the exterior, the podium makes a striking statement on Wellington Street with its unique cantilevered design. Although still very much unfinished, the lobby areas of both the hotel and the residences area (separate entrances) make you instantly aware you are not in a ‘just another downtown condo’ or ‘just another downtown hotel’. The attention to detail and craftsmanship is evident on every surface. Not much else to say at this point as the work crews are still very much hard at work putting the finishing touches on the common areas of the building. The hotel is slated to open next month! The first 3 or 4 floors of the residences have started occupying, and the penthouse levels are scheduled to start occupying by April.

Impressions of the suite: best description I can come up with of the sprawling 1 bedroom suite is ‘grand Parisian apartment from the past, with all the modern conveniences of today’. Cheesy I know, but there is nothing really to compare it directly with in Toronto. The suite was in excellent condition overall and the list of deficiencies was rather short when we were finished the inspection. Some of the standout features that really make the suite a true ‘luxury’ property include:

• 10′ smooth ceilings with crown moldings
• Herringbone patterned walnut hardwood floors
• Top quality granite and marble throughout the bathrooms and kitchen
• Solid wood cabinetry (no MDF here!) in Kitchen and baths
• Sub-zero, Wolf, and Miele Integrated appliances (ever priced out a Sub-Zero or Wolf appliance?)
• Extra tall, solid-core doors with high-end hardware)
• High end fixtures (faucets, toilets, sinks, shower heads) in the Bath and Kitchen
• Large walk-in closet with built-in organizer system in master
• Gas Fireplace with concrete-cast surround

I won’t post any photos at this time as the building and suite are still in a state of construction/finishing so to do so would sell this property short. (This suite will likely be available for sale in the near future so we wouldn’t want to do that!) If you have any questions about the Residences of the Ritz Carlton, please contact me.

If you have purchased a condo in Toronto that is coming up for occupancy in 2011 but you are not located in Toronto and are wondering what your options are for performing the PDI and taking occupancy, please contact me.

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The Residences at the Ritz-Carlton

Description coming soon.

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Developers Getting Aggressive With Buyer Incentives

Resale prices have dropped, sales figures are a fraction of what they were a year ago, and buyers are out there but reluctant to pull the trigger. What’s a Toronto condo developer to do?

In a slow market, developers are loathe to actually lower their prices as it devalues the entire project, pisses off previous purchasers and investors, and is generally considered to be a major sign of weakness. So how does one sell condos en masse in this market? More and more developers are getting creative with buyer incentive programs.

The Ritz-Carlton just started a promotion where, for the next 10 units sold, buyers will receive $250,000 in travel vouchers, redeemable in $25,000 increments every year for the next 10 years at for visits to any Ritz-Carlton hotel in the world. Wow. Even I am impressed by that. There are 29 units still available, ranging from $1.3-million to $9-million for 1,400 to 6,000 square feet. One of two lower penthouses is still available.

Bloor Street Neighbourhood and Casa – both projects by Cresford near Yonge and Bloor under construction and occupying in about 12 months – are offering purchasers of 2 bedroom units to ‘live free for a year’. How this works out is a credit upon closing that is equivalent to 1 years worth of mortgage payments on your condo. Doing the math on the purchase of a $660,000 unit, this promotion amounts to roughly $31,000 or 4.7% of the purchase price. Not too shabby and certainly much better than anything that was available to purchasers in the fall of ’08.

Expect to see more and more of these incentives popping up at new developments as developers and marketers attempt to lure would-be buyers off the fence and into a new condo.

Photo from Urban Toronto member Solaris

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The Best Penthouse in Toronto: Ritz-Carlton

Welcome to your online guide to “The Best Penthouse Suites in Toronto“. In this installment I will be profiling the penthouse suite at The Residences At The Ritz-Carlton.

Author’s note: This blog post was originally published in 2008. Hence, some of this information may be out of date. For the most up-to-date information regarding the best penthouse suites in Toronto, please contact me.

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