THE LUNACY OF 1 BLOOR EAST
CONTINUES
Charles Hanes,
November 14, 2007
 You know, the science of selling from a professional perspective fundamentally
boils down to Pavlov’s dog, where he rang a bell and fed the dog and the dog
salivated and then was fed. I shouldn’t have to deliver the punch line but in condo
terms the bell ringing is what we’ve been watching take place at Toronto’s most
recent condo concept launch.
I say condo concept because that’ all we’ve gotten from this developer so far.
This developer has never built a condo in Canada before yet no-one is asking about their
track record just lining up in sub-zero weather for over a week to be first to get a
chance to buy. They did develop Crystal Blue but that’s another well
“hyped” presale condo that construction has just begun on. The science behind
the condo business does not rest with the concept or even the actual building of a
building as these are resources that any clown with money can buy. The true science behind
this specialty industry rests in the developer behind the project. In this instance I have
seen nothing yet to be impressed with or by.
The hysteria underlying this tragic tale is based solely on uniformed consumers responding
to the ringing of the bell by an obvious well oiled marketing and sales machine! The old,
“where’s the beef” commercial comes to mind and with this scenario, the
only beef that we can get our hands on has to rest on the conduct of the parties behind
the deal.
As a professional “Buyer’s Agent” I don’t walk into sales schemes as
idealistically as does (seemingly) Joe Average Canadian. We Canadians were always
considered ultra conservative in the past but ever since my getting into the Toronto condo
sales business back in 1980 I have always seen this twinkling in the eye of the
“speculator Canadian”. Just check out our local Casinos and you see that
Canadians like to gamble. When I was a kid gambling was totally illegal around here so you
can see that things have changed.
Now, here at the corner of Yonge and Bloor we see the most dynamic living example of
Pavlov’s dog imaginable playing out on a very grand scale. The science behind seeing
how absolutely stupid this recent development in the Toronto condo development business
is, rests in hearing the questions that are NOT BEING ASKED.
I recently shared this very significant consideration with a local television stations
that was just opening up its eyes to the fantasy land known as the condo industry and
learning of what goes on behind the scenes from me! They’ve done tons of used car
salesmen shows with hidden cameras but had honestly never considered what goes on in the
biggest ticket item sale in the world. Let’s face it, with cars you are looking at
spending between $10,000 - $50,000 but with a condo the minimum price tag (using 1 Bloor
as our example) starts at $500,000.00 - $800,000.00!
I have no problem with developers wringing out huge profits from building multi unit
residential condos. Nor do I have any problem with their sales and marketing agents who
are paid to “sell the concept”. My main problem rests with the consumer him/her
self! Yes, I’m talking about you! With almost three full decades of earning my living
in this business I’m just flabbergasted with how unsophisticated and uninformed the
average condo buyer chooses to remain. They just keep on going out and walking in to condo
sales centers without ever having developed a plan or strategy and . . . . Whammo! You own
a condo!
One would think that such a high profile industry as delivering the key residential
component to urban living in the country’s major city would require a high level of
integrity and that assumption alone represents the fuel that drives this out of control
machine!
A truly astute and informed buyer/investor would not allow themselves to get caught up in
any shell game that is as basic and as obvious as is the residential condo sales game. All
sales industries are driven by professional sales and marketing skills and when the
industry itself allows participants to say anything and get away with it, and then allow
the developers to know that they can pretty well do anything or fail to do anything
without penalty, you really cannot come back crying in the end when everything comes
tumbling down!
From a professional point of view this Toronto development (“1 Bloor East”)
exemplifies the classic low class flogging of a product using excellent Pavlovian
techniques coupled with what at best can be called “questionable integrity”. We
saw a similar but on a much less great scale example at 5 King West, Toronto disastrous
condo hotel effort by Harry Stinson that took investors money but took years and years and
years to ever get completed only to deliver substandard returns to investors in the end
and which ended up on the litigation manure pile.
From any objective assessment the unbridled and unjustifiable (and totally “socially
conditioned”) drive to buy a condo in this building can be seen simply as illogical.
Here’s why”:
1. The developer is totally unproven: His total track record in Canada was selling Crystal Blue which was sold
using the exact same high pressure sales tactics as employed here. He has not built or
occupied (and satisfied buyers) any building nor has he registered any building here in
Canada. The name of the game in the reputation game here is getting your condo registered
in a tidy and prompt manner.
2. The location is second tier at best. Yonge and Bloor remains today one of the more
prominent “blighted corners in the city”. Oh, I know the ads (and
“they” - the mysterious “they”) say that “this is the best
location on earth”! Who says that? Oh ya, the developer through his slick ad agency
and marketing company. If you are buying anything based solely on ads written by the
seller you are not doing your homework. If you are calling yourself an investor and are
not doing your own “due diligence” then you are an amateur and it’s
amateurs that this guy and those like him feed off of.
The north west corner of the intersection is literally the historic boundary of Yorkville
(It actually was once a poor people’s grave yard) and the developer in this instance
is choosing to associate his site with the trendy and very upscale Yorkville area but a
simple glance along Yonge south or Bloor east will quickly dispel any misgivings about
this being a Yorkville address. It is nice to see development on this corner yet all of
the marketing in the world will not change it’s character. So, let’s keep it
straight that about the only person that I know would say this was the most important
corner in the world would be this developer.
3. The integrity of the developer so far is our only gauge on which to count when it comes
to identifying the most significant aspect of the buying cycle (establishing credibility
of the developer) and that has clearly been other-than-impressive so far. If the developer
chooses to employ the tactics and rather questionable ethical conduct that he has to date
on this project you can rather easily anticipate how he’ll deal with you
(buyers/investors) at the other end in 2011. I’m sick and tired of watching
unsuspecting buyers/investors buy the fantasies of these no name entrepreneurs who are so
obviously preoccupied with the sales and marketing shake down to truly developing world
class structures. “Profits over people” is not a battle cry that I would follow.
It has been reported to simplycondos.com through my first hand contacts in the local
business community that this development is more of a shell game than a legitimate
investment. For almost thirty years now I’ve been absolutely amazed watching condo
buyers line up to buy condos with no meaningful information at all! Years ago I wrote an
article call “Like Lemmings over a cliff” describing my bewilderment with how
easy it is for developers to influence the minds of consumers with “high pressure
sales and marketing tactics” that border or blur the lines of integrity and this
rather distasteful reality is as strong and prevalent today as it was then.
For the greatest majority of my condo career I worked directly for developers
running their sales and marketing and I can tell you that there is a whole lot more to
this specialty industry within the greater envelope of real estate than retail buying and
selling of a product. When I worked the sales floor I was knows as the “king
cobra” of condo sellers (“in the land of snakes I was known as the king
cobra”) meaning that if you visited my sales site the odds were very much in our
favor that you were buying a condo. If you were just looking, the odds were you were
buying a condo! If you were just thinking about it, the odds were you were buying a condo.
I could literally help you buy a condo even if you had a conscious plan to not buy one, I
was that highly trained and good at my job. I’m not trying to grab a little attention
here but rather trying to educate you to the reality that selling is psychological warfare
and no other industry in the world has been so refined over such a time period. The sales
process here starts with the media, where unsuspecting consumers turn to when they want to
“do their own research” (as if that’s even possible in this industry).
Newspapers write spectacular full page editorial (looking) pages with resounding
endorsements of modest developments because they are charging the developers up to fifty
thousand dollars a day for full page advertising pages. Is that want “journalistic
integrity” is all about?!
This very mind set has continued to manifest itself for three decades culminating right up
to this insulting extravaganza being orchestrated by this developer at 1 Bloor East.
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Let’s follow
the logic here. Who told anybody that “the demand was so high for this product that
if you didn‘t line up in sub-zero temperatures on the street for over a week to even
have the change of getting a suite“? Who told us that this was “the best
location in the world”?! Realizing that Yonge Street, especially in the blocks
running south from Bloor down to Front St., have always been some of the more blighted
that the city has to offer I wonder what merit the ad copy writer was relying on while
spreading the rumor that “this is “the best location in the world”!
I watched this insulting display of manipulation run it’s course at 100 Yorkville,
with Realtors sleeping out on the sidewalk over night (at least the hype didn’t drive
anyone to camp out for a week and it was in the summer not sub-zero November in Toronto).
I attended the so-called VIP Event (a supposed “insider’s” event where
Priority Brokers can introduce clients to enjoy preferred access to suites) with a client
who desperately wanted to purchase a residence in this upscale development.
When we showed up at the event my client was shocked to see the “Availability
Board” representing that 80% of the units were already sold. He just couldn’t
comprehend how we could be attending a Priority Buyer’s Event only to find that only
20% of the units were still available for sale. The public hadn’t even been given the
opportunity to buy anything yet!
He was even moreso shocked when I told him that I had a personal appointment set for the
following morning and that I was confident that his suite (there were only 2 of this model
in the development) or more accurately the suite that he was interested in “would
probably be available at that time”. I could see the confusion taking over his logic
as on this Friday night at about 9:00 p.m. the “Availability Board” clearly was
telling us that the unit was SOLD!
I’ve always said that in this industry you “believe nothing that you hear and
only half of what you see and you’ll do alright”. This entire industry is built
on hype and manipulation! Those red dots filling up the “Availability Board”
don’t mean anything. Oh, they do represent the sold suites that the developer has
managed to sell to friends and family members but they will also include “hold back
suites” that the developer plans to sell later and many time they just carry red dots
to convince everyone that everything is selling. Oh, did I shock you by telling you that
slick sales and marketing machines use “tactics” that frequently include not
being totally truthful? Welcome to the real world of condos.
Bloor Street east on it’s own merit is not bad with some older condos like The
Rosedale, Rosedale Glen, and some newer condos like Bellagio, Bloor Walk, 85 Bloor East, Signature On Bloor.
Contrary to the marketing machine for 1 Bloor East, this is NOT a Yorkville address as
being represented. Yes, it’s just a couple blocks walk to Yorkville but in all
reality Bloor and Yonge is a far cry from Yorkville.
1 Bloor East is being
touted as a five star hotel and residence. A couple years back Toronto had NO (0) five
star hotels with or without residences in them. In the past couple years we’ve seen
the introduction of a host of the including The Hazelton with a nice balance of 5 Star
Hotel and 18 exclusive residences right in the heart of Yorkville; The Ritz Carlton Hotel &
Residences located in the Financial District; The Shangri La Hotel & Residences
on University Avenue; Trump
International Hotel & Residences in the Financial District; The Four Seasons Hotel &
Residences in Yorkville; so mixed use hotel an residence developments are a highly
competitive industry niche into which 1 Bloor St. is a late comer. You’ve got to ask
yourself how many $800+ per square foot buyers are there out there? This does not even
touch the horrific competition offered by other high end developments like L-Tower in the St. Lawrence Market
area; Pier 27 on the
harbourfront, 1 St. Thomas,
in Yorkville and The Regency in
Yorkville not to mention a bunch of Forest Hill condos and literally dozens of other high
end condo developments in the city. An intelligent buyer/investor has got to ask
themselves “on what is all this hysteria built”?
1 has 545 units??? With the majority of them being sold to speculators who will either try
to “flip” them at occupancy or registration or rent them out. So, when you buy
your million dollar dream home in the sky you will ride elevators stopping on up to 79
floors with tons of renters who have rented from the speculators that slept out in the
cold to buy this dream.
I’ve just observed the serious drop in rental incomes in Toronto where clients of
mine that purchased 2 bedroom 2 bathroom units in The Met at College and Yonge a couple
years back at about $350 per square foot are getting only $2150 per month in rents where
$2600 would have been the going rate when they bought 2 years back. One has to consider
the impact of buying at $800 per square foot and how much rent they can expect from their
investment property. I think the math speaks for itself.
This developer manifested fiasco around 1 Bloor started weeks back when the developer
invited purportedly the “Top Realtors in the city to a Private VIP Event” and
announced that “no-one could buy units until Nov. 13th” while I had already
learned that one of my buyers for the project had already come across an “insider
agent” working for the developer who sold him a unit before we even attended the VIP
event. Call me jaded but I’ve just been at this a very, very long time.
I don’t mind this (my skin has grown thick over the 3 decades of dealing with these
guys) but what it shows about the developer is a very calculating and “at all
costs” motivation. Had they simply had a Realtor information night without all this
hype an hoopla, I would respect them more but to misinform everyone intentionally to
manifest “hype” is something that concerns me. Having people (anybody) sit out
in sub zero temperatures to try to buy something that has already been sold seems more
than disingenuous to me.
I then learned that this developer had offered his “insider agents” (I’m
not sure that these people are even Realtors) units “only if they took entire
floors” which they allegedly did and then returned with their signed offers to
Purchase only to find out that the developer was now refusing their offers and requiring
“an additional $75,000 per suite“. Now, I don’t know about you but to me
this is downright unethical!
Now, you’ve got to ask yourself how anyone can deal with people in such a way and
expect that they will ultimately ever deal with them again? If you sat and slept out in
the cold (around freezing) for a week not knowing that the developer was out there every
day behind your back selling the units would you feel ethically dealt with? Would that be
seen as fair and responsible treatment?
I’ve seen these “hype machines” come and go and as a Buyer’s Agent (I
undertake the legal obligation to protect ONLY my client’s best interests) I could
not recommend that my clients buy into Crystal Blue and I cannot
recommend buying in 1 Bloor
East.
To buy here means one of three things: 1. You are going to live here; 2. You are going to
keep the unit and rent it out; 3. You are intending to flip the unit for an immediate
positive return on your investment money.
Let’s deal with these one at a time:
1. You are going to live here: If you are in live here you will want to start comparing
locations. Best to go out and stand on the south east corner of Yonge and Bloor and see if
this is the “neighbourhood” in which you want to reside. If the answer is yes
then you will want to look at the 9 and 10 foot ceiling heights and the price per square
foot and see what else in on the market of comparable appointments, finishes and
amenities. You will want to consider whether having so many small units and hotel
occupants in the building makes it the setting that you are looking forward to coming home
to every day. At these prices you could be living in a Ritz Carlton or Shangri La and, to me I’d be
seriously looking at these alternatives. This location worked for Signatures on Bloor
(right next door) but that was in the $300 per square foot price range NOT $850 per square
foot!
2. You are going to keep the unit and rent it out: That’s not a bad plan but
let’s look at the abysmal track record of Toronto Condo Hotels such as 1 King West
which is now hung up in litigation and units not turning any profits or returns for the
investors. Now look at your “buy price” and do the simple math. If buying these
units at $800 per square foot with 35% down (investments require 35% as opposed to
residential primary residents running at 25% mortgage ratios) can you even come close to
having the unit carry itself? If not, this negative cash has to come out of your pocket
each month for as long as you own your investment property.
3. You are going to flip the unit. With 80 floors (they don’t actually have the 80 -
they are still fighting to get it) and by far the majority of buyers being investors, you
have got to understand that you will not only have competition when trying to sell, you
will have serious competition. Same applies with renting out the units but most spec
investors intend to “flip” during occupancy. There has got to be a buyer for
your unit at that time and when you are buying at $800 per square foot you’ve got to
sell at $900 or so to walk away with a net profit after commissions, carrying costs, legal
costs, and Capital Gains taxes. Factoring in the sizeable competition already out there
and the high density of the building you will be better served focusing elsewhere for your
“flip” transaction. There is a set criteria that I use to assess investment
opportunities and that formula strongly recommends that I advise my client to walk by this
one.
This whole scenario is based on “hysteria buying” feeding off of
“speculators”! Speculation is precisely what brought down the entire industry in
the late 80’s, a time when most of today’s hot shot investors were still in high
school but which was a major education for us old timers in this industry. Speculation in
balance is good. Speculation out of whack as we see it being today, is BAD.
There is better investment opportunities all around the city. For advice contact me
directly by email or by phone at 416-783-5000.
I’m Charles Hanes |
