How Real Estate Investors can take advantage of the tech boom in Downtown Kitchener

Andrew la Fleur: On today’s episode, we’re going to be talking about why downtown Kitchener just might be the next best place to invest in Ontario. Stay tuned.

Announcer: Welcome to the True Condos Podcast with Andrew la Fleur, the place to get the truth on the Toronto condo market and condo-investing in Toronto.

Andrew la Fleur: It’s my pleasure to welcome back to the show returning guest Darryl Firsten. Darryl, welcome back to the show.

Darryl Firsten: Hey, Andrew. Thanks so much for having me.

Andrew la Fleur: Yeah, great. For those of you who don’t know Darryl, he’s the president of IN8 Developments. Of course, IN8 are the developers behind DTK Condos, which we’re going to be talking about in a minute, but Darryl, maybe just tell everybody a little bit about yourself. How did a Toronto boy like you end up becoming this big Kitchener-Waterloo real estate developer?

Darryl Firsten: Well, it’s an interesting question, Andrew, and a lot of people ask me that. They ask me if I went to school in Waterloo or if I was from Waterloo. The answer to all those questions is no. I picked Kitchener-Waterloo. Being from Toronto, I knew I wanted to invest in real estate and be part of real estate development, and I had the whole world at my fingertips, and the spot I picked was Kitchener-Waterloo for a series of reasons, and I’ve been with it for about 15 years now. That’s worked out great, and we plan to keep going in the KW area.

Andrew la Fleur: What were some of those reasons? I mean, like you said, I guess, you … You decided to get into real estate development. You looked around at different markets, and you zeroed in on Kitchener-Waterloo. What was the thinking there, and what was, maybe take us, like what was the timing on that, and what was the thinking?

Darryl Firsten: Yeah, for sure. This dates back to 2005 for me, and my logic in Kitchener-Waterloo was it’s got two great universities, and University of Waterloo in particular is producing incredible engineering and computer science minds, which was very important to me. That was the first thing I looked at. It had two large universities with really high growth rates and high quality tech talent coming out of them.

The second thing I liked was proximity to Toronto. I think Toronto’s a great place to invest in real estate, and I would want to be close to Toronto. I’m not saying Toronto’s the only place to invest, so that’s why I wanted to try Kitchener-Waterloo. In more recent years, what I’m noticing is the by-product of those amazing universities and that intellectual talent is startup tech companies, which are growing and creating more jobs, and that’s really what we’re following with the DTK Project.

Andrew la Fleur: Yeah, so you, obviously, you’ve made your name in Waterloo as opposed to the sister city Kitchener. Tell us a little bit, for those of us who aren’t familiar, what has IN8 Developments done in Waterloo specifically, and where … You started in 2005. Here we are in 2018. When was your first building, and where are you at now in terms of what you’ve done so far?

Darryl Firsten: Sure. I started work on my first apartment building in Waterloo near the University in 2009. IN8 built three apartment buildings in Waterloo, and then we started to build condos with our Sage Condos brand. We just finished selling our Sage X building plus a few townhouse projects in there as well. All told, we’ve completed about 1,500 units or so in Waterloo, and that’s been great. Every single project was started on time, completed on time, occupied on time first occupancy date. Never missed on any of them. That’s basically our history building in the neighborhood.

Andrew la Fleur: Yeah, and investors have done very well in Waterloo. I mean, like you said, universities are growing. You could keep doing more stuff focused on the universities there in Waterloo, but now you’re shifting your focus to downtown Kitchener. Take us through that. Why downtown Kitchener? What is exciting you most about this marketplace down the road from where you’ve been for the last 9 or 10 years?

Darryl Firsten: Yeah, for sure. I’d like to start by saying that at IN8 Developments, we like to be ahead of the curve. We like to be leaders and not followers. When we sold our Sage One building, it was the first student housing condo anywhere in the country anyone had heard of, so we want to be the first to do something. We’ve now sold a lot of condos in Waterloo, student-oriented condos, and it’s gone great. We could probably keep doing that for a long time, but we’d like to go ahead of the next trend right now.

What we noticed is, in selling all these condos and managing those units for our buyers, we get to talk to all the tenants that are living in all of our buildings and listen to the trends and listen to what they’re doing and where they’re going, and we’re hearing the same story over and over again of, “Just got a job working in downtown Kitchener,” “Got a great job working at Google,” “I’m working for Desire2Learn,” “I’m working for, I got a job in Communitech there.” We investigated, and we were noticing is we love tech. We love tech jobs. We love tech job growth. They’re amazing, part of our economy. It’s a growing part of our economy. They pay well. They attract really high quality employees. We know that the Kitchener-Waterloo region is famous for having lots of companies and lots of jobs, but what we’re noticing is, historically, they’re more in Waterloo near the university, but there’s a trend happening now where those jobs are migrating from Waterloo to downtown Kitchener.

Ultimately, in tech, you need to hire the best quality talent, and you pretty much have to go to wherever it is that they want to live. All these employees, these 26-year-old software engineers working at OpenText, for example, they don’t want to live in the university area of Waterloo. They’re kind of done with that phase of their life. They want to live in downtown Kitchener. That’s where the bars are. That’s where the good restaurants are. That’s where the farmer’s markets and musical festivals and the park are. It’s a much trendier and nicer place to live, so we’re noticing companies wanting to move there as well to follow those employees.

We’re trying to get ahead of this trend here and noticing there’s going to be incredible demand for places to live downtown Kitchener. That’s why we’re coming out with this project.

Andrew la Fleur: Yeah. Yeah. I mean, it’s … Would you say, I mean, what you’re seeing in Kitchener in terms of the downtown revitalization, so to speak, I mean, is it the same thing that we’re seeing in a lot of cities across North America where the downtowns that were once neglected for the better part of the last 30-40 years, now there’s suddenly a rejuvenation, a new interest, and warehouses are being converted back and infrastructures being put in place. Are you seeing that same, is that same sort of story that we’re seeing across North America, or is there something unique or different about what’s happening specifically in downtown Kitchener?

Darryl Firsten: I think in downtown Kitchener, it is the urban intensification, urban revitalization story, but I think it’s happening at a rapid tech kind of pace. The job growth is off the charts in downtown Kitchener. Like you said, we’re not only investing in residential in downtown Kitchener. We’re investing in those old brick and beam buildings and converting them for commercial space for our growing tech companies. I think you’re seeing a rapid urban intensification.

Furthermore, it’s worth noting the new LRT system. Outside of Toronto, there’s really no city in this province that has a viable public transit system. There’s a lot of talk of them. Hamilton’s still talking about it. Mississauga’s in the process of building it out, but Kitchener has actually completed their LRT system. It’s now fully down and just waiting for the Bombardier trains to start rolling, so that is supposed to happen later this year. You’re seeing a much more rapid revitalization of this downtown core.

Andrew la Fleur: Right. Yeah. Talk to me, I mean, there’s so many stories we can share with listeners about specific examples of what’s happening downtown. Obviously, Google is a big one, and a lot of people have heard probably that Google has recently launched a major expansion. They’re going from, I believe, a couple hundred employees to a couple thousand employees, something like that, but specifically, I find this one development called Catalyst137, I found that really interesting. I know you’ve got some insights into that. What is Catalyst137? People can Google it, of course, but what is Catalyst137 exactly, and what does that say about what’s happening in downtown Kitchener?

Darryl Firsten: Catalyst137 is a really interesting story. The developer Frank Voisin is actually a good friend of mine, so we’ve had many chats about this. What they recognized is there’s actually two types of technology jobs. There’s software, but there’s also hardware. We all know about software and coders, and they basically work off a laptop, and they can work anywhere. They can work on the 20th story of an office building, but then there’s a thing called hardware. Those guys need to be on the ground floor, and they need loading docks. It’s more industrial, but it’s still high tech and has the same rapid growth rates that other technology has.

What frank identified was the fact that everyone’s building space for software companies, like Google, for example, but no one’s building space for hardware tech-

Andrew la Fleur: Interesting.

Darryl Firsten: … companies, so he was actually able to buy a 500,000 square foot old manufacturing facility, and he’s now converted it to a hardware tech, like Internet of Things kind of space. He started leasing eight months ago, and he’s now 85% leased on 500,000 square feet of just hardware tech space. That, alone, is in excess of 2,000 new jobs that were brought to downtown Kitchener. That’s where Catalyst137 is located. That’s just the tip of the iceberg because that’s just one development bringing new tech jobs.

The other thing we’re seeing is not just jobs coming to the Kitchener area, but jobs migrating from the outskirts of the Kitchener area to the downtown core. That’s the revitalization of the downtown core story. For example, Deloitte, which is the largest accounting firm in the region, had a regional office out near the 401. They are now moving to downtown Kitchener. We actually just heard an announcement two days ago that Kik Communications, which has an app, they have apparently 400 million daily-

Andrew la Fleur: K-I-K, right?

Darryl Firsten: … active users. Yeah, K-I-K. They’re a staunch Waterloo supporter, and their office is up near the University of Waterloo, but they just announced two days ago they’re now moving to downtown Kitchener. That is one of the tech darlings of, I guess, the Waterloo region in Canada. We’re talking a billion dollar company here has finally decided to let go of Waterloo and move to downtown Kitchener.

Andrew la Fleur: Wow. Yeah. That’s huge. I mean, you throw it around like it’s no big deal, but I need to emphasize that with the listeners here is billion dollar company, these startups, $100 million startup, $200 million, some of them are a billion like Kik, these are massive wealth generators, and you can only start to imagine the economic spinoff that is about to occur in the months and years ahead as all these jobs are coming into a relatively small area. This is not downtown Toronto. This is downtown Kitchener. It’s a relatively small and walkable part of the region where all this job is coming in.

Darryl Firsten: Yeah. Absolutely. I mean, over the last four years, 8,400 tech jobs have been created just in Kitchener alone. That’s over 2,000 new jobs every year, and that doesn’t include jobs that are migrating from the outskirts of the city into the downtown core, which is where all the new jobs are being created in the downtown core. That’s a massive amount of people working, more people working, but it’s not just any job. It’s not a dead-end job. These are people making a minimum of $80,000 a year. You suddenly get a couple, you have a gross family income of just the two of them of $160,000 a year. That is either, A, an incredible tenant to have, or B, a future purchaser for your condo unit.

Andrew la Fleur: Right. Yeah. Exactly. That’s a huge part of the story is understanding the types of jobs that these are. They’re very high-paying, and it’s just a beautiful place to be a landlord with this high quality of tenants that’s there.

What’s happening, else, you mentioned on the transit side, you mentioned the LRT. What do we know as well about the recent announcements with the high speed rail, and what do people know about that?

Darryl Firsten: It’s an extremely important story. On the public transit side, I’d say there’s two stories. One is the completion of the LRT, which gets you around Kitchener-Waterloo, which is a fantastic addition. Pre-LRT is like talking about Toronto in 1956, and look where Toronto’s gone since then. That’s one important story.

The second important story is the connectivity to downtown Toronto. First, the government has now announced that they’re going to be having direct GO Train service right from downtown Kitchener, like a couple blocks away from this project, to downtown Toronto leaving every 15 minutes all day.

Second, they announced $11.2 billion to build North Americas first high-speed rail that’ll connect Kitchener to Pearson Airport and downtown Toronto. Just for the record, high-speed rail travels at a minimum of 250 kilometers an hour, and that links you directly from Kitchener to downtown Toronto in about 43 minutes. In that 43 minutes, you don’t have to worry about driving your car. You can send your emails, watch videos, do whatever you want. It suddenly becomes an amazing way to potentially live in this great city of Kitchener and be able to do some work in Toronto.

Andrew la Fleur: Yeah. Yeah. I mean, you’re going to get that amazing synergy of people being able to live in downtown Kitchener or live in downtown Toronto and get back and forth, lawyers, tech people, accountants, all sorts of professionals, engineers, and just that flow of people and yeah, it’s incredible. I mean, you’re going to be able to get from downtown Kitchener to Union Station faster than Richmond Hill.

Darryl Firsten: It’s amazing. Yeah.

Andrew la Fleur: That’s not too far away. Just a few years down the road, this is going to be a reality now the funding’s in place. Of course, it’s election season, so it’s interesting the timing of these announcements, but it’s great to see this is finally happening. As you said, it’s the first of its kind in North America, so that’s really, really exciting. I believe, it’s, what, a 10-minute walk or something from DTK Condos to this future transit hub?

Darryl Firsten: Yeah, you can either walk a beautiful 10 minutes, or there’s an LRT stop right in front of our building, which will take you two stops to the transit hub, so you can be there in under five minutes.

Andrew la Fleur: Even better.

Darryl Firsten: Yeah. It’s actually also a great story for the urban intensification story. This site is a 97 Walk Score, and that’s a 97 Walk Score today. That is before the LRT is operational, which it will be later this year, so you can imagine how that Walk Score will increase once you have this public transit method right in front of you as well as the downtown core continues to get intensified, the Walk Score’s only going to go up. When we put a Starbucks on the corner right in front of us, the Walk Score’s only going to go up. There’s a great opportunity to live, work, play downtown, be able to commute into Toronto when you want to. You really don’t have to own a car.

On that topic as well, we’ve really future-thought or tech-proofed the building. We even had a ride-share Uber, Lyft, whatever, drop-off spot in the building.

Andrew la Fleur: Wow.

Darryl Firsten: We-

Andrew la Fleur: Nice.

Darryl Firsten: We know the kind of people that are going to be living in this building.

Andrew la Fleur: Yeah. Yeah. Let’s talk about the building itself, DTK Condos. What are the highlights? What do we need to know? What do investors need to know specifically about what makes this building unique?

Darryl Firsten: Well, first of all, it is, at 33 stories, it will be the tallest building in the Kitchener-Waterloo region. Currently, the tallest building is about 24 stories. We built it in Waterloo, and this building will be almost 10 stories taller. This will be a true landmark. The location is incredible. It’s right in the center of downtown Kitchener, LRT stop right in front of you. It’s one block off King Street where you’re going to find all the amenities that you want. Fantastic location. The units, sorry, the amenities in the building are amazing.

We know exactly the type of person it is, or we think we know who the type of person it is who’s going to want to live in this building, and we really cater the amenities to that person. Aside from having an amazing gym and lounge and party room, we have a huge rooftop terrace with barbecues and patio. In that rooftop terrace, we even have an organic community planting garden, very millennial type thing to have. We have a pet spa, recognizing the type of people that might live in this building might have dogs and don’t want to walk them in front door and get mud all over the place, or snow in the middle of a winter, so we have a place for them to groom and clean off their dogs before they come inside.

Every unit in the building comes with a optional tech package, which, in the pre-construction phase, we’re giving away for free. That comes with smart lights, smart door entry system that you can use off your phone, smart thermostat, basically all the things that these potential young tech professionals are going to want to see in the place they live. Then the unit themselves, great finishes and extremely efficient layouts.

Andrew la Fleur: Yeah. Absolutely. The floor plans really are, they speak for themselves. It’s obviously hard to talk about that in a podcast, but when you see these floor plans, you’ll see what I mean. They are ultra well-designed efficient units that are just perfect for investors.

For the investor who’s maybe new to buying outside of Toronto, what are some of the differences you might highlight or some of the advantages you might highlight of buying in Kitchener versus buying in Toronto?

Darryl Firsten: Yeah, couple things I’d note are your price on this building is about half of what downtown Toronto would be, so it’s a significantly lesser price tag, but the interesting thing is the rents aren’t half. They’re not the same of Toronto, but they’re more than half of Toronto, so your general return looks a lot better, which means your ability to carry such a unit at 75 or 80% loan-to-value is totally viable, whereas in Toronto, it is not.

Andrew la Fleur: Right, and yeah, on the cashflow basis, and then closing cost, of course. Big differences in closing cost as well, aren’t there?

Darryl Firsten: Yeah. Well, this is a doozy, and you might start clapping when you hear this one but we’ve capped the development charges at zero dollars. If you bought a condo recently in Toronto, you’ll know you’re probably seeing a five-digit number for the development charge extra that comes on your statement of adjustments at closing. In this case, you will see zero dollars under development charges. It’s not just because we’re nice guys. It’s because the City of Kitchener wants to promote … There’s such a shortage of housing in the downtown core, new construction housing in the downtown core that they want to promote this new LRT line so they’ve offered zero development charges to us the developers until the end of 2018. We have to start construction before the end of 2018.

This gives you two things. One, no development charges. You’re not going to see that on your statement of adjustments, but, two, you know that we’re extremely highly motivated to start construction before the end of 2018, so you can be sure we will. On that topic, I should also note with this project, it is already fully zoned and site plan approved. We are just working towards a building permit now.

Andrew la Fleur: Right. Wow. That’s great. You know it’s going to get built, and you know it’s going to get built on time. Estimated occupancy is, you’re aiming for what at this point?

Darryl Firsten: Summer 2021.

Andrew la Fleur: 2021. Yeah. Summer 20, so a little bit over three years from now. That’s great. Darryl, it’s been great chatting with you about Kitchener-Waterloo and DTK Condos. Is there anything I didn’t ask you about with respect to DTK Condos or Kitchener that you wish I had have covered?

Darryl Firsten: No, Andrew. I think you did an excellent job really painting a picture of what’s going on there, which is incredible government spending and infrastructure and public transits, incredible job growth and high quality job growth, and a intensification of the downtown core, and this building sits right at the epicenter, so yeah, I think we hit all those things.

Andrew la Fleur: Awesome. Great. Well, Darryl, if people want to just get a hold of you and learn more about IN8 Developments in general, what’s the best place for people to do that?

Darryl Firsten: Yeah, shoot me an email, give me a call. I’d love to talk to people about the project.

Andrew la Fleur: Sure. Did you want to … Okay, that’s great. I mean, usually, developers don’t like to get people personally calling them, but if you’re offering that, then that’s great. Do you want to give an email, a phone number, anything, or do you want them-

Darryl Firsten: Yeah, for sure. Andrew, I’d also-

Andrew la Fleur: … to just go through me or-

Darryl Firsten: Sorry, Andrew, yeah, I’d also note, you probably don’t see a lot of developers come out to your educational seminars, but I definitely do that because I like to hear what people are thinking, and I like to continue to improve my projects by listening to our customers. Yeah. I guess they can probably reach me through you would be the best way to do it.

Andrew la Fleur: Great. Okay, yeah. We’ll do that. Yeah, just anybody listening, just drop me an email, andrew@truecondos.com. Give me a call at 416-371-2333, and we’ll get you in touch with Darryl via that way.

Darryl, thank you so much for your time today. I really appreciate it.

Darryl Firsten: Yeah, my pleasure.

Announcer: Thanks for listening to the True Condos Podcast. Remember, your positive reviews make a big difference to the show. To learn more about condo-investing, become a True Condos subscriber by visit truecondos.com.