Baby, we got a bubble!?

[CITY_LOVER]

I make it a point to trust folks with Booty in their screen name!

I have to agree with Mike & condo George on this one (please save the you're biased because you're in real estate comment, heard it, I evaluate the numbers and have nothing to do with this project or this developer)

Here is the hard data: Wellesley on the Park launched at $684 psf on average per RealNet Canada Inc. and is 80% sold in two months.

Average resale values on a per square foot basis for the last five quarters per data from Urbanation Inc
Burano: $661, $686, $684, $721, $728 (15-20 transactions)
Murano - South Building: $657, $688, $751, $718, $738 (5-10 transactions)
Both buildings have ridiculously high sales-to-listings ratios as well.
Now several of these resales would include a parking spot or locker in that index price, so are not apples-to-apples with the Wellesly on the Park index price.

Investors buying now are buying a condominium market future, ie paying a down payment now for the right to buy a unit at $684 psf in June of 2018. Assuming parking at $15 psf, the current resale market is commanding $710 to $720 psf based on the net resale values for Murano and Burano (College Park units are actually trading higher), values could stay the same over the next four years and Wellesley would still look like a relatively good bet, if prices drop 5% or more, then the comparison gets murkier.
However, what is the value of being right on Yonge, what is the value of everything being brand new and never lived in, what is the value of a new home under warranty?

Comparing new vs resale is difficult and picking a singular unit that is 300-400 sf larger than the average unit trading in the other building is not an accurate way of evaluating the merits and value proposition of a new project.

Hi, what's your take on Lumiere Condos? They don't seem to get as much ... attention ... as the other condos around it (for better or for worse)...

 

[BMyers]

Hi, what's your take on Lumiere Condos? They don't seem to get as much ... attention ... as the other condos around it (for better or for worse)...

values at Lumiere have rivalled Murano and Burano, with units trading between $690 and $725 psf, which is significant as it wouldn't achieve the same view premiums being shorter than many of the surrounding projects.

it likely doesn't get the same attention as the Lanterra, Canderel or Pemberton sites because it is a single tower as opposed to a multi phased project, and is only 30 storeys. otherwise it is a nice project.

 

[CN Tower]

Investors buying now are buying a condominium market future, ie paying a down payment now for the right to buy a unit at $684 psf in June of 2018.

Ben,

I value your input and appreciate your participation. Notwithstanding, your self admitted bias is an emormous red flag to this discussion. Furthermore, the facts concerning the securities ban associated with your company do raise legit concerns for anyone contemplating an involvement with them. But everyone deserves a fair shot at redemption in my opinion.

To the statement above you must understand the inherent flaw and clear danger of your logic. Investors are not paying for 'the right to buy'. They are buying. They are committed with both non refundable deposits and more importantly with full recourse. If prices move against them they are extremely vulnerable to massive losses that they can't escape. Unlike a single purpose corporation that can just fold up and walk away, your 'investors' are locked into their purchases whether they realize it or not.

That's the inherent danger and it is significant.

 

[CN Tower]

Look at the raw data, not TREB's spin: http://www.torontorealestateboard.com/MARKET_NEWS/rental_reports/pdf/rental_report_Q2-2014.pdf

Condo rental market in Toronto continues to weaken, as there are more unrented units and average rent is down. What's going to happen when all these units under construction come online? Looking around the city there's a bunch of huge condos that should have renters in within the next year.

DS,

I tend to agree with you there. The notion that condo rental vacancy will remain extremely tight in a market with 50,000 plus units about to be delivered, many of them in the core and 50%+ of them ear marked for the rental market is indeed antithetical to basic supply/demand laws.

The demographic trend favoring downtown core living is surely a boost but the development industry will clearly over shoot that demand by the looks of it.

 

[urbandreamer]

The thing about these condo rentals is everyone I meet that lives in a one bedroom rental condo seems to have roommates. So really 50,000 units translates into about 75,000-100,000 new renters over the next few years--where will these people come from?!

And to qualify for a $1500/month rental, you need to be making $60,000+ a year. Yet the average Torontonian makes $30k or so.

Or am I wrong?

 

[TheKingEast]

The thing about these condo rentals is everyone I meet that lives in a one bedroom rental condo seems to have roommates. So really 50,000 units translates into about 75,000-100,000 new renters over the next few years--where will these people come from?!

And to qualify for a $1500/month rental, you need to be making $60,000+ a year. Yet the average Torontonian makes $30k or so.

Or am I wrong?

I rent out several properties and I get a lot of people coming by who work good jobs and make above average salaries. Then there are couples. If the average salary is $30K. If you have a couple making $60K combined (which is still on the low end) they can more than afford rent.

I don't know where these people are coming from but they're coming. I get places rented very quickly.

 

[BMyers]

Ben,

I value your input and appreciate your participation. Notwithstanding, your self admitted bias is an emormous red flag to this discussion. Furthermore, the facts concerning the securities ban associated with your company do raise legit concerns for anyone contemplating an involvement with them. But everyone deserves a fair shot at redemption in my opinion.

To the statement above you must understand the inherent flaw and clear danger of your logic. Investors are not paying for 'the right to buy'. They are buying. They are committed with both non refundable deposits and more importantly with full recourse. If prices move against them they are extremely vulnerable to massive losses that they can't escape. Unlike a single purpose corporation that can just fold up and walk away, your 'investors' are locked into their purchases whether they realize it or not.

That's the inherent danger and it is significant.

CN,

I come onto this forum because I like to talk real estate, not to solicit business. I have posted a link to a Fortress Real Capital project because I'm just such a big fan of Symmetry, the project is in my neighbourhood, and I want people to see that if they love great architecture, they can help get more of it built in Toronto. However, that is not my intent, to be honest, I never should have included the company logo as my avatar.

People tend to misunderstand my intentions when I post on here, when I argue that I don't think we are in a bubble, it is not because I think I'm going to drive Urban Toronto readers to buy pre-construction condominiums (the majority of our high-rise portfolio is outside of Toronto), it is because I enjoy the conversation, and many of the objections I use as inspiration when writing the Fortress Blog, articles for the Real Estate Investment Network or the New Condo Guide.

I could post on here anonymously, but I don't beleive in that, when I speak I put my name on it. It's not my place to talk about the settlement the owners of Fortress made, it had nothing to do with Fortress Real Developments and happened way before I started working for them. I did my due dilligence when switching companies and very much trust and beleive in my entire team, we give thousands to charity every single year, and not a single Fortress investor has lost their principle investment, interest payments have been delayed, but you have to understand that our partners are in charge of the project, and we can do as much underwriting as we can, our partner can still misstep. I had a great job where I ran the company, but I believed in the company that much that I left when my wife was pregnant.

The post yesterday afternoon was simply an attempt to compare the value of a resale condominum unit at Burano and a new condominium at Wellesley. Nowhere did I say that Wellesley was a better proposition and that buying pre-construction condos is a great idea without any risk. I obviously understand buying a pre-construction condominium requires you to close on the unit, I'm talking about buying a resale unit at Burano or a new unit at Wellesley, you're buying in either case, and if you expect a major downturn in the condominium market then you would be at risk (or massive losses as you say) in both instances.

I try to include hard data in each of my posts, and I'd like to discuss that data, not what bias I have, who I work for now or in the past.

 

[interested]

CN,

I come onto this forum because I like to talk real estate, not to solicit business. I have posted a link to a Fortress Real Capital project because I'm just such a big fan of Symmetry, the project is in my neighbourhood, and I want people to see that if they love great architecture, they can help get more of it built in Toronto. However, that is not my intent, to be honest, I never should have included the company logo as my avatar.

People tend to misunderstand my intentions when I post on here, when I argue that I don't think we are in a bubble, it is not because I think I'm going to drive Urban Toronto readers to buy pre-construction condominiums (the majority of our high-rise portfolio is outside of Toronto), it is because I enjoy the conversation, and many of the objections I use as inspiration when writing the Fortress Blog, articles for the Real Estate Investment Network or the New Condo Guide.

I could post on here anonymously, but I don't beleive in that, when I speak I put my name on it. It's not my place to talk about the settlement the owners of Fortress made, it had nothing to do with Fortress Real Developments and happened way before I started working for them. I did my due dilligence when switching companies and very much trust and beleive in my entire team, we give thousands to charity every single year, and not a single Fortress investor has lost their principle investment, interest payments have been delayed, but you have to understand that our partners are in charge of the project, and we can do as much underwriting as we can, our partner can still misstep. I had a great job where I ran the company, but I believed in the company that much that I left when my wife was pregnant.

The post yesterday afternoon was simply an attempt to compare the value of a resale condominum unit at Burano and a new condominium at Wellesley. Nowhere did I say that Wellesley was a better proposition and that buying pre-construction condos is a great idea without any risk. I obviously understand buying a pre-construction condominium requires you to close on the unit, I'm talking about buying a resale unit at Burano or a new unit at Wellesley, you're buying in either case, and if you expect a major downturn in the condominium market then you would be at risk (or massive losses as you say) in both instances.

I try to include hard data in each of my posts, and I'd like to discuss that data, not what bias I have, who I work for now or in the past.

Ben, this is reassuring. However, the reality is that Fortress as a company if I am not mistaken has been around only during the boom times so this is hardly a resounding endorsement. I believe that most real estate ventures though not all have been positive in the past 10+ years with few exceptions.

 

[nrb]

The most entertaining part of real estate bubbles is watching the goons flock to become agents and investors when they see how much money everyone else is making off it. Hope you have a backup plan.

 

[DearSummer]

The most entertaining part of real estate bubbles is watching the goons flock to become agents and investors when they see how much money everyone else is making off it. Hope you have a backup plan.

Canada’s next housing bubble: real estate agents
http://business.financialpost.com/2014/05/09/canada-housing-bubble-agents/

The number of people selling real estate reached 108,706 during the first quarter of the year, according to the Canadian Real Estate Association. To put it another way, that’s one realtor for every 245 Canadians over the age of 19.

We have almost as many people selling houses as making them. Statistics Canada said in its labour force survey for the year 2013, there were 131,000 carpenters. There are only 202,200 cooks in Canada.

 

[interested]

Canada’s next housing bubble: real estate agents
http://business.financialpost.com/2014/05/09/canada-housing-bubble-agents/

This is a fairly logical predictable pattern. In 1989 the market turned. The real estate agents stuck it out for a couple of years and with decreasing prices and sales falling people got out. The market turned in 1996-1997 but really started its big climb in 2000 and low and behold, everyone went into real estate.

There is a similar pattern in the U.S. The reality as I understand it is that the top 10% of realtors do the majority of the business. There are a lot of part time and people who have licences that they maintain but do very little sales and perhaps 1 or 2 transactions / year.

 

[DearSummer]

Anybody have examples of preconstruction or resale condos in the City of Toronto that could be cash flow positive from a rental perspective? I'm looking at the TREB reports (which lacks key details, like the average price of a 1-bedroom condo in City of Toronto) from Q2 and I don't see how investors could get involved at this point.

http://www.torontorealestateboard.com/market_news/condo_report/2014/condo_report_Q2-2014.pdf
http://www.torontorealestateboard.com/market_news/rental_reports/pdf/rental_report_Q2-2014.pdf

Average rent for 1-bedroom: $1,583

Investors...how much could you pay for a 1-bedroom that rents for $1,583 to be cash-flow neutral? Interested in seeing the calculations as I can't for the life of me figure out how anybody can carry these units and make money without speculating on appreciation?

 

[drewp]

Anybody have examples of preconstruction or resale condos in the City of Toronto that could be cash flow positive from a rental perspective? I'm looking at the TREB reports (which lacks key details, like the average price of a 1-bedroom condo in City of Toronto) from Q2 and I don't see how investors could get involved at this point.

http://www.torontorealestateboard.com/market_news/condo_report/2014/condo_report_Q2-2014.pdf
http://www.torontorealestateboard.com/market_news/rental_reports/pdf/rental_report_Q2-2014.pdf

Average rent for 1-bedroom: $1,583

Investors...how much could you pay for a 1-bedroom that rents for $1,583 to be cash-flow neutral? Interested in seeing the calculations as I can't for the life of me figure out how anybody can carry these units and make money without speculating on appreciation?

Plenty of affordable bachelors around the Fort York neighbourhood that give you $200-$300 cash flow every month with a 20-25% down payment. I usually tell my clients to look at a unit that can be purchased for $600 a square foot or less, that can rent for at least $3 a square foot. This usually gets you cash flow.....again certain variables will affect that result, specifically maintenance fees.

 

[DearSummer]

Plenty of affordable bachelors around the fort York neighbourhood that give you $200-$300 cash flow every month with a 20-25% down payment. I usually tell my clients to look at a unit that can be purchased for $600 a square foot or less, that can rent for at least $3 a square foot. This usually gets you cash flow.....again certain variables will affect that result, specifically maintenance fees.

Got any examples from MLS you could post? I would like to check it out. Thanks.

 

[drewp]

What i am saying is, these are only guidelines to look for when purchasing a condo investment. Again, there are many variables to look at, but this is the blueprint that I use to help people understand the numbers. I have had many clients who might not be seasoned investors find this approach helpful.

The numbers work in certain locations. Buying a 600 square foot condo would not be advisable. Looking for something 500 square feet or less is the best option, because the rental rate per square foot would be better than a larger condo.