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The Downtown Land Market with Jeremiah Shamess from Colliers

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In this episode, Jeremiah Shamess, a Redevelopment Associate at Colliers International, talks to Andrew la Fleur about the downtown land market, representing land owners, and a few high profile condo sites in Toronto that have recently changed hands.

Jeremiah Shamess Interview Highlights

0:00 Who is Jeremiah Shamess?
1:20 Housing Bubble Be Gone
4:10 How Jeremiah Got Into Real Estate
7:50 Is there a “Land Bubble”
9:10 The Most Difficult Thing for Developers
12:33 Land Owners in the Downtown Core
18:19 New High Profile Yonge & Bloor Site
22:55 Areas in Toronto to Keep Your Eye On
26:30 Does Representing Land Owners Help?
28:00 The Best Way to Reach Jeremiah

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Jeremiah Shamess Interview Transcript

Andrew:
Hi and welcome back to the show. Today on the show I’m going to be interviewing Jeremiah Shamess. Jeremiah is a Redevelopment Associate at Colliers International and Jeremiah deals with the land side of the condo equation, so typically talking to people about the condos itself. Jeremiah is coming in to play and what he does is far before any sell centers are in the ground he’s involved with the transaction of land that takes place between the landowner and the developer. We’re going to talk about the anatomy of a deal and how so many sites come together. We’ll talk about a few high profile sites like the Yonge & Bloor site that recently transacted and a few other things, so stick around for that.

Before we get to that interview, I just wanted to talk to you about this article that I saw in the Financial Post and I’ll include a link to this article and all the links for this episode can be found at truecondos.com/jeremiah. If you go there you’ll find a link to this article. Headline of the article is “Housing Bubble Began”, it turns out we just might need all those new condos and houses. Basically, they’re talking about the fact that immigration and household formation supports the number of homes and number of condos that are being built in Canada. This one is specifically talking nationwide, not specifically about the Toronto market per se.

The economist that they’re quoting in the article is Benjamin Tal of CIBC. Incidentally, I have been trying to get Mr. Tal on this podcast so if you’re listening, Mr. Tal, I’d love to have you on the show. I’ve heard him speak at a few different occasions and he’s just a great guy to hear about the housing market in Canada and the condo market. I’d love to have him on the show and hopefully, he will agree to be on the show soon as you’re welcome anytime, Mr. Tal.

He’s basically saying that again, they’re sort of underestimating, in this report that he wrote with his co-author, Nick Exarhos, that they’re possibly underestimating the number of household formations that are going to be taking place in Canada and therefore, the number of houses that are being built and condos that are being built are needed. In fact, there may be a shortage for new properties to meet the demand just based on pure immigration and numbers coming in. It’s a trend that we keep seeing again and again. I think the main point of it that he talks about in this article is the fact that when you look and you break down who is coming to Canada, the immigrants themselves, when you take the 400,000 or whatever that number is that’s coming in and you break it down from an age cohort perspective, the immigrants that tend to be coming in are younger and more likely to be purchasing homes and living as singles or couples and so the number of household formations required, therefore, is higher than what you might expect. Interesting article there and I’ll include a link to that.

Now we’ll get to the interview, here it is with Jeremiah Shamess of Colliers International. Enjoy!

Andrew:
OK. It’s my pleasure to welcome to the show Jeremiah Shamess. Jeremiah is an associate on the redevelopment team for Toronto for Colliers International. Welcome to the show, Jeremiah!

Jeremiah:
Thanks, Andrew.

Andrew:
Great. Why don’t we get started and you can tell us a little bit about yourself and what you do and how you got started in real estate?

Jeremiah:
Yeah, I would love to. In kind of a backward story of how I got started in real estate, my entire family are physicians and I originally wanted to be a doctor and took science in school. Realized I really did not like science so in second year I switched over to business and then started to try to understand the business world. I had a cousin who runs a commercial real estate debt markets in Chicago for Bank of America, so he’s doing these large condo development deals in Manhattan and San Francisco and telling me all about them. Then also finding out an alumni of mine was a senior vice president at Colliers, so I just started talking to people and trying to understand where I wanted to go and realizing real estate was the way to go. Then I got hired at Colliers as research analyst and then started on the redevelopment team selling development land and the rest is history there. Yeah, it’s kind of a backwards way to get into the business but real estate was always part of my father’s hobbies so getting into it on the bottom end was where I wanted to go.

Now, I guess to talk a little bit about specifically what I do, specifically, it’s development land that I sell and buy for Colliers on behalf of owners or developers on the by-side, I should say. My specialization will deal with everything from low-density subdivision land to high-density condo land and everything in between, townhouse land, etc. Lately, my practice has focused a lot on high-density condo land as of course you know, the condo market is quite doing well, it’s doing well rather, and because of that developers are quite hungry for this high-density redevelopment-type land. When I say redevelopment, I mean there’s an existing property with something on it, it may not be a parking lot and the highest invest use is not the particular current use, so it ends up being a condo is the highest invest use and that’s what it’s sold as.

Our practice deals a lot with representing landowners and advocating for them in this sales process to gain the highest value for that landowner. We do everything from highest invest use studies, land plan studies and architectural mappings where we work with an actual architect and different consultants, basically to garner the full picture of a piece of land for development, whether it be the high-rise land or when office/retail mixed-use type site. It’s about … [inaudible 00:07:45]
Andrew: OK. Yeah, that’s great. Normally I ask most people I’m interviewing is what their thoughts are on if there’s a condo bubble or not in Toronto. In your case, Jeremiah, I’d like to ask you, is there a land bubble because you deal with land transactions, so what are you seeing in the land market and pricing of development sites? Is there a land bubble?

Jeremiah:
The easy answer, Andrew, is no, there is definitely not a land bubble. What happened was there’s been a bit of a roller coaster ride for land in the past six years, you can call it. Starting with 2007, 2008, where land was priced quite high and selling at all-time highs in the current market then down to a low 2009, 2010 and then starting to gain steam again in 2011, 2012 and then actually losing steam again in 2013 and now, to our current year, back up. It’s been a bit of an up and down roller coaster but as a general thought, land prices have gone upwards. The reason I say there is not land bubble is the actual ability to buy land is probably one of the most difficult parts of developer’s entire process.

Andrew:
What do you mean by that exactly? Why is it so difficult?

Jeremiah:
Well, for one, we all know that when you look around, you walk around downtown Toronto, you’ll see a lot of high-rise buildings already. The land use is already been developed into a high invest use, so there’s not a lot of land left. As they say, “By land got to not making anymore”. When you’re trying to find a site for a condo development, there has to be an area where the end use, the actual selling of the condos is going to be favorable for the market. In your case, you’re selling different condo sites, say like Minto Westwide, in doing some awesome projects like that on the condo site, the developer when looking at land that was a deal that was done quite some time ago was actually bought by another developer and then Minto came in and managed the process. That was a very high-profile site that when it initially sold … I think it sold for around $40 million [inaudible 00:10:26].

Andrew:
Right, OK.

Jeremiah:
Basically, to go back to your answer, developers will try and acquire sites through a different means, a number of different means. Number one is when we represent a landowner we will actually go through a what we call a modified bid tender process or an RFP process, call it. We’ll go out to 500 to 1,000 different developers, investors, people who are active in buying land and will actually ask for proposals on a bid date from all the different developers. What this does is it allows the piece of property be fully exposed and it generally garners the highest price for the landowner and developers will bid on that based on their interest in the site.

There’s other ways as well, the developers approach landowners privately and will try to get the deal done just through talking between each other. When you have a lot of developers active in Toronto, everyone is going through the same pieces of land that are the best location. A number of people had tried to buy them into Westside site for many years and the deal ended up getting done by another peculiar developer who brought in Minto knowing their reputation to run the process. That was a bit of an anomaly there but really the best case scenario for the developer is to just control that piece of land and to buy it in the end because there’s really not a lot of good parcels left. It’s just incredibly competitive and landowners are becoming more and more, I guess you could say, demanding for what price that they would like and that controls the process and the price of land in the long term.

Andrew:
Let’s talk about specifically like the downtown core. How would you characterize landowners in the downtown core? Are they pretty sophisticated? Are they getting more and more sophisticated or are there still a lot of landowners who really don’t understand the true value of what they’re on? You hear a lot of stories about landowners as well and the other side of the coin where their valuations are just crazy then they’re yes, it’s for sale but it’s just 200% of market value and it’s never really going to sell. How would you characterize, we’re talking of the downtown core, sort of the mindset and what’s happening with the landowner side of things right now?

Jeremiah:
Yeah, you’re absolutely right. There are two sides of the coin. I would call the land market a large economy as far as what happens. You have developers on one end expecting one pricing, knowing they could sell condos at what X price. Landowners on the other end expecting large pricing and not really understanding what actually goes into the development process.

There are, I should say, that there are many sophisticated landowners and we love working with those landowners because they don’t need to be educated as far as the process, but they understand doing a bid process will garner the highest price and will be exposed to the greatest amount of buyers. They’ll understand that pricing will typically be at the best that they can get. There are other owners that may not quite understand, say the planning situation in Toronto. For one to understand that will really help you understand what the value of the land is. For example, there’s a parcel in the Eastside right now that I’m working on and there’s a special policy that is there from the City of Toronto. They’ve done some studies on the area and they basically understood that you can only build X number of heights. The landowner sitting there is looking down the street and seeing a 45-story tower, looking down the other side of the street seeing a 30-story tower, so they automatically assume, “Well why can’t I build 30, 40-story towers?” This kind of dictates a higher price tactic for the land because the higher you can build, the more valuable the land is typically.

You do run into problems like that where the landowner may not completely understand the planning risks. That’s where our job is to come in to do a highest investing study, to help them understand exactly what is happening on the planning side, what the city is requiring and what risk the developer may take to actually be a bit more aggressive on that planning side and what they’re able to do. It’s a bit of a difficult situation because there’s totally two sides of it.

Some landowners don’t understand what value they have. For example, we sold a parcel not too long ago right at King and Spadina and the landowners thought, “I think it’s worth around six million,” but we brought it through a process and it ended up being eight million. There are examples like that, but then another example is the high-profile site, Yonge & Bloor. The fellow there had been asking for $130 million for his parcel for years. I’d been into talk with him many times and I just could not justify the evaluation that he wanted. I spoke to many clients and no one else could justify it as well. We even spoke to buyers in Manhattan, New York, we’re doing 100-story towers, looking for high-profile sites in Canada and they couldn’t justify it. At times, the landowners can be quite demanding and that parcel ended up selling for less than that and I think it was just the right timing and the right buyer.

There’s a lot of owners asking for very high pricing and that would be where the driving the price of land upwards can put a lot of pressure on the developer to price the condos at the right pricing, may be a bit higher than the market is seeing. I think that’s where you see appreciation generally. There’s another theme that I should probably touch on is that a number of developers have now started to price their product so aggressively that they’re able to sell out the building quite quickly knowing that the end buyer, the condo buyer, the investor, wants to buy a project at a particular price. These developers, they have to be very careful in buying their land because that’s where the profit is changed probably the most. Once they’re able to buy the land at a specific price then they’re able to put forward the product, the condos, to investors and end users at the best price. That’s why you’ll see some of the best developers who have the most resources were able to find land parcels at the best price with the best end product.

Andrew:
Interesting. You’re touching on Yonge & Bloor site there, very high-profile site that recently sold. Let’s talk about maybe one or two other high-profile sites and just get your comments on that. I heard recently that the large parking lot on the Eastside, Queen and Jarvis, apparently that property has sold. What can you tell us about that site there?

Jeremiah:
Well that’s an interesting site as well. Again, I’ve been into talk to the owner there a number of times and basically, he had assembled a number of different sites over the years to acquire, to have this one massive parcel that went from one street to the other street; it was an entire block rather, two and a half acres. One of the last large, undeveloped pieces of land because it was just a parking lot.

The other one being really at front in Spadina. This one in particular is a little bit of an interesting story and it’ll give you some insights and your listeners to how landowners go through the emotions of selling a parcel that’s worth quite a bit more than they have acquired it for. Initially, he’d actually brought it out to market to be sold in the similar process that we had done many years ago and he had some bids at the top and for fairly good pricing at the time, but decided not to sell. It was a number of reasons coming in that we don’t need to go into detail about, but one developer picked it up and I got through his finance and another one had decided not to take on the deal and that was right before the crash of late 2007-2008, so no one wanted to take it.

From the years from there, a number of developers had unsolicited offers brought in being represented by myself and some other agents where they had put forward a number that actually made a lot of sense. It was very aggressive. For some reason, the owner had thought that he was getting higher numbers all the time so we continued to chase the bid. He continued to turn down pricing assuming he would get a higher number. What happened in the end is again, it was a timing process, I think the fellow is a bit of an older fellow and he’d wanted to do some planning for his estate and had decided to sell. What ended actually selling for was probably about eight to ten million less than the top bid for the property that happened three, four years ago, so he’d lost out a bit. When I say lost out it’s minimal because when you’re selling a parcel for $85 million and you acquired it over the years for maybe $20 million …

Andrew:
You’re doing OK. Yeah, you’re doing OK at the end of the day in either way. That’s interesting that just a little insight there, very interesting anecdote about the anatomy of a deal and how like you said, when you’re talking about such huge numbers you certainly want to … I see it all the time and an individual condo sale when you’re talking about multiplying those numbers by 1,000 or 10,000, then the emotions and the ups and downs and just so many different factors can come into play. It’s interesting how some deals, like you said, you might end up getting a lot less than offers before when you sort of had the attention of the market and bidding wars and then maybe it was a different time.

Are there any future pockets or hot areas that you’re seeing now for development? Up and coming areas, areas that the typical condo investor wouldn’t know about? As condo investors, we see the condos that are for sale but you as working at the land side of it, you’re seeing a land transacting two or three years before it ever becomes a condo that’s being marketed for sale. Like you said with the Front and Bathurst site talking about that years ago and now finally, here we are and late 2014 and now it’s just coming on to market. Are there sites, are there areas of the city that you’d say people might not know about right now but they’re areas to keep your eye on for future development and future opportunities?

Jeremiah:
Yeah, absolutely. There’s kind of two areas in my mind where I get a number of calls from buyers looking for land. Right now it’s kind of the mid-rise boutique type builds where the developer doesn’t have to take as much risk. They’re building maybe a 12, 13-story condo; it has 100 to 150 units. They can be a little more creative with their design. They can be a little more creative with their marketing, it seems, and the risk as opposed to a 400, 500-unit building, they want to build something like that. I see a lot of that right now on the Eastside and I should also say it’s going up to 30, 40-story towers on the Eastside as well closer to Yonge.

Everything all the way over at the Don Valley, there’s a lot of eyes on that area and I think it’s drawn by the specific reason that in the entertainment district, King West, all the way on the Westside, I think right now there’s 50 act of development applications in. There’s quite a few developers looking to develop or to redevelop projects and going through the planning process for the next two, three years. That means they’re bringing on a certain number of projects and certain number of units to the market.

I think looking at the Eastside there’s not a lot of congestion as far as traffic goes and there’s not a lot of land that’s been completely taken up. There’s still opportunity there for developers to look on the Eastside and say, “In the next two to five years, we really like this area because it’s design-oriented. There’s a lot of great retail frontage here. It’s distillery district. The PanAm Village is getting build there.” There’s a lot of reasons they’re going over there, but the one thing I would say is mostly competition for condo development.

We’re actually looking at a few projects there we’re going to bring to market and we’re getting a lot of interest already. That’s definitely one of the areas, too. I guess I’d also say that on the peripheral of the downtown west towards Dufferin Street, there are a number of areas that developers are still looking at. That area has not quite been totally developed and there’s some great nodes Queen West area, Little Italy, Bloor West area that are being looked at by developers as far as the next area to go into. Again, those are more boutique builds, whereas the Eastside still has potential for high-rises, the 30 to 40-story type of things. At this moment I’d say big time downtown East that is …

Andrew:
That’s the number one area to watch for in the future. Interesting. The question if often like to ask of you is is there a question that no one has ever asked you about what you do or about land development or about commercial real estate downtown but that you wish someone would and what would that question be?

Jeremiah:
Let’s see … it’s a good question. There’s a number of things that come to mind. I’d say probably the number one is does your specialty actually help because you’ll see a lot of real estate agents chasing land deals when they may not have the specialization and understand the full process, the development process. I wish people would ask me that more because it’s all I do and it’s all team here does at Colliers. I have a great team supporting me and it’s why we’re able to be successful in the last in a while representing landowners because our specialization allows us to understand the uncommon knowledge that may not be as apparent to say, a generalist in the area.

Andrew:
Absolutely. Well I definitely hear you in that point. As you know, I specialize in pre-construction condo sales as opposed to other types …

Jeremiah:
I referred you people because I know …

Andrew:
Yeah, thank you. Thank you. Yeah, definitely specialization is the only way to go. You’ve got to have specialized knowledge in this business to succeed. I want to thank you again for your time today, Jeremiah. If they want to get a hold of you, find you, what’s the best way to reach you?

Jeremiah:
I guess you can follow me on Twitter, JShamess is my name there and you can send me a message if you’re interested there as well at collierscanada.com and search my name Jeremiah and all my information is right there. I’m happy to chat if anyone has any questions.

Thanks again for having me, Andrew. It’s been a pleasure. I love listening to your podcast and I’ll continue to do so.

Andrew:
Great. Thank you, Jeremiah. I’ll be sure to include a link on the show notes to your contact information like you just described. I hope you have a great weekend. We will catch up with you soon. Thanks, Jeremiah.

Jeremiah:
Great. Thank you, Andrew. Bye.

Andrew:
Well there you have it. That was my interview with Jeremiah Shamess. I hope you got something useful out of that conversation. That was interesting to hear him talk about the up and coming areas of the city, particularly the downtown Eastside as an area to watch for in the years to come as the Westside of downtown. Certainly the central part of downtown is rather … the opportunities are few and far between to develop land in a lot of these pockets, so when you’re looking at downtown, certainly the Eastside has a lot of potential in the future; You’ve got Regent Park redevelopment; Corktown, a lot of action there around Queen East. You have the distillery district, the West Don Lands area, St. Lawrence Market. You have the Bayside community down on the waterfront. All of this is happening on the east side of the city so you’re going to see a lot of transformation in the years to come, so that’s certainly an area to watch and as an investor, an area to potentially take part in before prices become inflated and before they do catch up eventually with the prices that we see on the Westside. Traditionally, the east side of the downtown is more affordable than the west side. Of course, the Queen and Jarvis site that’s a massive site there. It would be interesting to see what project, what plans are going to be happening on that parcel of land there as we talked about in the interview.

OK, I hope you enjoyed this episode. Once again, if you like the show I’d appreciate your support. Go ahead and leave a review, if you don’t mind, for the show over at iTunes. Just go to iTunes and click “Leave a Review” for this podcast. I really appreciate it, especially if you’ve been listening for a long time, you enjoy the show and you just haven’t had the chance to get over there and leave a review, please do. It really helps get the word out about the show and helps more people find it.

Once again, you can find all the show notes for this episode over at truecondos.com/jeremiah. Great. Have a great week and we will talk to you soon. Bye.

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